Conditioning Investors for Risk
- October 3, 2022
- Phil Cannella
- 0 Comments
Brokers, regulatory agencies, and the mainstream media often blur the lines between annuity vehicles. Purposefully conflating these types of investment vehicles condition investors to believe the common misconception that all annuities have risk, when in reality, this is not true. The fact is that there are variations of annuity investments; some come with a lot of risk, while others do not. By breaking down these misconceptions about annuities, investors in or near retirement can learn from a team of licensed retirement phase experts about how they can eliminate market risk, fees, and other dangerous features of investing with Wall Street.
Annuities are offered through insurance companies, and there are three types of annuities that an investor can choose. These annuity types include fixed, fixed index, and variable annuities. Every contract has unique features that can be tailored to meet the financial needs of each investor, except variable annuities, which are directly tied to the stock market through mutual funds. This dangerous type of annuity increases the risk that an investor will lose money due to their placement in high-risk mutual funds. Other contracts, on the other hand, are safe and guarantee an investors’ principal while eliminating market risk and fees from their retirement portfolio. These safe vehicles, known as fixed and fixed index annuities, are often overlooked by brokerages because they do not always carry fees for brokers to syphon commissions from. As a result, these types of safe investments are often discarded by brokers in place of risk investments that swindle larger commissions.
Fixed and fixed-indexed annuities protect investors from market risk and protect their principal from being depleted if the market drops. These vehicles are not securities and with proper advising, investors can protect themselves from any fees or extra charges that could be applied to their investments. Variable annuities on the other hand are securities, as an investor’s return is dependent on the performance of the mutual funds that their money is invested in. Variable annuities put the investor’s principal at risk as the investor can lose money when the performance of the market is poor, and the investor’s principal can be eaten away by costly fees applied by the investor’s broker or firm that they’re invested with.
Although the rule of thumb is to reduce market risk and transition out of risk investments as Americans approach retirement, brokers often convince investors to jeopardize their nest eggs with variable annuities. Since investors are generally not aware of the costs, risks, and fees associated with variable annuities, brokers benefit greatly as they will continue collecting ongoing commissions from the variable annuity’s management costs. When brokers, firms, and regulatory agencies blur the lines between safe annuity vehicles and high-risk securities, investors are negligently left at risk of losing significant portions of their nest egg.
Regulatory bodies like the Securities and Exchange Commission (SEC) also play a role in obscuring the differences between annuity vehicles. In July of 2020, the SEC’s Office of Investor Education and Advocacy published a report describing indexed annuities as securities while cautioning investors about the risks, fees, and potential to lose money with those investments. While the SEC report did state that not all indexed annuities are securities, they only included a one sentence footnote at the end of their report stating, “Indexed annuities that are not regulated by the SEC include minimum guarantees that limit and, in many cases, eliminate the potential for investment losses.”
It is not uncommon for investors to find information that runs contradictory to the truth about annuities. Brokers, financial websites, and the media all contribute to the misinformation that is spread about annuity investments, which makes it more difficult for investors to find accurate information about how to protect their hard-earned savings. By receiving an exclusive financial education from the licensed educators at Crash Proof Retirement® — who specializes in safe alternatives to Wall Street — investors can gain peace of mind from knowing they will no longer have to worry about the uncertainty of the stock market and risk investments. At the same time, investors can rest assured that they are fully aware of the different types of annuities, including the disastrous, retirement threatening variable annuity.
Securities have market risk, management costs, fees, and ultimately can jeopardize an investors retirement nest egg. When brokers and securities regulators blur the lines between different annuity vehicles, investors are led to believe the common misconception that all annuities are alike or unsuitable for retirees. These falsehoods only serve to benefit Wall Street and the brokers who propagate this misinformation, as safe alternatives to Wall Street cut into their bottom line. The fact is that there are safe, guaranteed contracts available for Americans in or near retirement that can protect their principal while also providing growth opportunities for investors. Achieving peace of mind ultimately comes down to receiving a proper financial education, which can be obtained from expert retirement planners in Philadelphia, or anywhere nearby. The team at Crash Proof Retirement® are certified licensed specialists in safe alternatives to the risk and fees of Wall Street that are best suited to meet the financial needs of retirement phase investors.
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