We’ve spent a lot of time dissecting the Fixed Income Fund here at Tactical Wealth, and for good reason.
Our innovative investment strategy is simple to understand, easy to navigate, provides our investors with a stable, reliable income deposited directly into their bank account monthly.
What more could you want from an investment, really?
Well, when you break it down, the Fixed Income Fund really isn’t all that different from investing in a more common fixed annuity.
There are some key differences, of course – view our breakdown of the Fixed Income Fund versus Annuities, Bonds, and CD’s here – but at its core, the best way to understand how our fund works is to first understand what annuities are, how they work, and when they’re right for you.
As with any investment strategy, there are pros and cons associated with investing in annuities.
In this blog post, we’ll outline many of those pros and cons, as well as offer a solution to help mitigate or altogether eliminate the risks associated with annuities.
If you’ve been contemplating an investment in an annuity, allow us to help you decide whether or not that route is right for you and your money.
What Are Annuities?
For starters, there are several different types of annuities. Each one more or less does the same thing, which is allowing an investor to pay out a large principal investment to an insurance company or investment firm, which will then pay out returns on a steady monthly basis.
Annuities typically allow you to receive payments at age 59 ½ or later without additional tax penalties, and their durations vary from 10 years to 30 years and anywhere in between. With annuities, you can choose to receive your payments monthly, quarterly, semi-annually, or annually, based on where you are in life and how you plan to use your money.
So, what are the different types of annuities? They include (but certainly aren’t limited to):
- Immediate Annuities: These types of annuities allow the investor to receive a return now, or immediately. These types usually require a bigger investment (and higher fees) than the deferred option below.
- Deferred Annuities: Also known as “longevity insurance,” a deferred annuity doesn’t start paying out returns to investors until a previously agreed upon date. These typically are lower cost at the time, because the insurance company or investment firm gets to keep (and use) the principal investment for longer before it has to pay anything out. These are advantageous if planning for retirement or another period in the future where you may need a reliable stream of money.
- Fixed Annuities: Similar to a CD, only the investor is allowed to receive dividends throughout the maturity of the investment. Fixed annuities have an interest rate that is locked in throughout the expected “holding period,” or through the maturity of the investment. With a fixed annuity, you can receive guaranteed income for a set period of time. But more on the benefits of this type later.
- Variable Annuities: Variable annuities are essentially investments into the stock market, with the rates tied directly to the overall market and trading industries. Variable annuities can invest your money aggressively or conservatively, based on your preference and stage in life.
- Indexed Annuities: Indexed annuities are a form of variable annuities in that they are tied directly to the stock market index, with a relatively low risk and low return lifespan. These types of annuities are generally intended to be long-term investments.
Pros Of A Fixed Annuity Investment
Since the Tactical Wealth Fixed Income Fund is most closely related to a fixed annuity investment option, we’ll focus on the pros and cons of that type.
Fixed annuities are generally fairly sound investments, offering an opportunity to receive steady income for a designated term agreed upon by you.
If you choose to have an annuity to cover you for a longer period, they tend to be more advantageous investments because it can last through the duration of your life. That puts the risk on the insurance company, particularly if you plan on living a long, happy, healthy life.
Annuities can be excellent supplements to other forms of income, particularly when it comes to retirement. While payments from social security continue to grow less reliable, an annuity can offer a healthy income supplement to assist with your quality of life post-work.
Plus, there are options in place which allow you to stay ahead of inflation altogether. Some annuities will steadily increase their payouts as the years go on, which can be extremely beneficial to your purchasing power and overall rate of return.
Finally, fixed annuities are commonly much safer and more sound than an investment in the stock market.
That’s because your rate is locked in and no longer tied to the overall market, plus you can always count on the same rate of return no matter what happens. That is, of course, assuming the company from which you purchased your annuity is healthy and thriving. But more on that later.
All told, a fixed annuity is a fairly solid and safe investment strategy, particularly if you intend to utilize its benefits throughout the later stages of life.
Cons Of Fixed Annuities
And now, for the bad part.
Fixed annuities, while they are generally safe, offer deferred tax advantages, and have a fixed interest rate, also have a variety of fees associated with them. From the various commissions, annual fees, and management fees associated with purchasing and maintaining a fixed annuity, investors typically find that they aren’t seeing as high of a return as they’d like. Sometimes, according to The Motley Fool, you could be paying a broker commissions as high as 10 percent. That’s a whole lot of money lost that you’ll never touch again, no matter how long your annuity is locked in.
And speaking of low returns, while fixed annuities do offer a fixed rate, it’s most often a very low rate. If you happen to purchase your annuity at a time where the market interest rate is low, you’ll never have the opportunity to see that rate increase and produce a larger return. Instead, you will be receiving the same low monthly payment while other investments pass you by.
Finally, annuities are complicated. We don’t know how many times we’ve heard from investors who said they didn’t know exactly what they were signing up for, and the terms and conditions associated with their annuities was too much to bear. With investments, especially when you are planning for retirement, time wasted is money wasted.
Pros of the Fixed Income Fund
Like we said, the Fixed Income Fund is similar to a fixed annuity in a lot of ways.
However, you should think of it more as a fixed annuity on steroids.
With the Fixed Income Fund, you’ll receive stable, reliable monthly income at the highest interest rate available – and it will never change!
By strategically investing in real estate, specifically mortgage and trust deed loans, we mitigate the risk of a failing market by targeting areas with advantageous foreclosure laws and historically stable markets.
But one of the biggest perks of the Fixed Income Fund is that there are exactly ZERO fees. No management fees. No transaction fees. Nothing.
Once you make your principal investment, you can start reaping the benefits of financial security for a duration you choose, from two years to 30 years.
The Fixed Income Fund offers more than any other annuity can. It offers you peace of mind. Contact us today to learn more. Happy investing!