A. In investment world, there are two golden rules:
- If it sounds too good to be true, it probably is.
- Never invest in something you don’t understand.
Variable annuity sales totaled $142.8 billion in 2013, making it one of the most sold products by brokerage firms. What make variable annuity so popular? The short answer is the guarantees it offers. Here is the background of it:
The dramatic swings of the stock market (especially 2008 and early 2009) created a panic for many investors. Many thought their portfolios were conservatively invested, only to see their value drop a quarter or even more.
Brokerage firms and insurance companies reacted to this market situation by creating products to address investor fears. Products were created that allegedly offered a guarantee of principal with the opportunity to participate in the market. Sales took off.
However, most people who bought variable annuity products failed to understand it, and blindly looked at the good part only. We will discuss three little known facts about variable annuity so you can have a better view about what made variable annuity so popular among brokerage firms.
Stay tuned for our next post.