Your annuity investment options are completely dependent upon which type of annuity you have chosen for your investment. If you recall from the article on the types of annuities, there are two main types of annuities.
These two annuity types are the fixed annuity and the variable annuity, which determine the amount of your payout. In the fixed rate annuity you will get a guaranteed payout for a reduced risk, but for a variable rate annuity, you have the chance to earn more at the risk of losing as well. These affect which annuity investment options are open to you.
Within each type of annuity you will find different investment options. Let’s look deeper into this topic and what’s available to us.
How Do Annuities Invest Your Money?
Suppose you have chosen a variable annuity. You now have a specific set of annuity investment options that are essentially sub-accounts that are offered within the individual annuity. These are likely to be different mutual funds to diversify the risk while attempting to increase your chances of gaining more money.
Everything depends upon the performance of these mutual funds. If they do well, your annuity account will grow. If they perform poorly, then your account value will suffer as well. This is the risk you take with a variable annuity.
It should also be known that the variable annuity has to be managed, so despite the tax-deferred growth, you will still be paying much higher annual fees than the fixed annuity, so it’ll need to perform well enough to cover those costs before it’ll return a real profit.
A fixed annuity functions in a very similar fashion, but the investments are longer term in more steady and safe mutual funds. There will be much lower annual fees for a fixed fund. Don’t think all annuities deal only in mutual funds. There are other types of investments that we will be discussing as we dig deeper into each type individually.
Basics of Annuity Investment Options
So that’s it. Your annuity investment options are heavily dependent upon whether you have a fixed or variable annuity. Even then, you probably won’t be making these decisions, you’ll have an insurance agent figuring this out for you, who is trained, experienced, and qualified.