What are annuities?
In this blog series, our aim is to help you make informed investment decisions by understanding annuities, bonds, CDs, stocks, and other popular securities.
At Tactical Wealth, we have your financial security and happiness at the forefront of our minds.
Part I of our series on understanding annuities touched on the similarities, differences, pros, and cons of annuities vs. CDs.
This is where we discovered that CDs and fixed annuities are somewhat similar in that they provide fixed income at set intervals, but where they differ is in the fact that fixed annuities pay out more consistently with money that grows on a tax-deferred basis.
So, where does that leave us? In order to better understand annuities, now it’s time to compare them to another popular product which is somewhat similar to CDs: municipal bonds.
Keep reading to learn more about the pros and cons of fixed annuities vs. bonds and contact Tactical Wealth today to download your free fixed income report.
What Are Bonds?
Bonds come in many shapes and forms, but the most common types are those sold by municipalities, governments, and even corporations.
Similar to annuities, in which you are buying an investment from an insurance company, the municipality or corporation essentially treats your principal payment as a loan.
Over time, the bond grows at a fixed interest rate, the dividends from which are paid out back to you, the investor, in fixed payments throughout the maturity of the bond.
Bonds vs. Annuities
So where do these two types of investments differ? They are both popular among retirees, or at least those who are preparing to retire, because they provide a stable stream of income that can always be counted on.
However, it’s important to recognize the fact that fixed annuities and bonds alike are, in the end, profitable for the insurance company or municipality that is selling them.
Both products carry high investor and/or broker fees, though the fees associated with annuities are known to be higher than those carried by bonds.
Since this is part two of our series on understanding annuities, we’ll focus a little bit more on the product that we are comparing them to.
Benefits Of Bonds
When compared to fixed annuities, bonds offer a few similar and a few outstanding advantages.
The biggest perk when it comes to bond investments is that they tend to yield higher returns than annuities.
How is this possible? Simply put, there are a number of factors that companies and government bodies must weight when selling bonds. In order to entice investors, they tend to offer higher interest rates, and therefore yield higher returns, than the rates offered by insurance companies selling fixed annuities.
Benefits Of Annuities
However, bonds don’t always mean higher returns. Bonds only pay out for a fixed period of time, such as 10 or 15 years, while fixed lifetime annuities can pay out for, well, life.
This is one of the biggest advantages of fixed annuities for retirees. The assurance that they won’t ever outlive their income or savings is often enough to sway many toward annuities over bonds, CDs, and even stocks.
But what if there was a better way to do that very thing without having to pay the high fees we mentioned before? Now there is.
With the Fixed Income Fund, investors get the stable income and peace of mind they deserve. Who can benefit from fixed income? Retirees, aggressive investors, young professionals, and more.
Download your free fixed income report today to learn more, and stay tuned for part three of our series aimed at understanding annuities.