What I learn from others - Equity Index Annuities Explained
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Do you familiar with equity index annuities? Tell you the truth, I never learn about it before I read an article from Rarely Right Blog. The author really did the best job by explaining Equity Index Annuities using the plain language instead of using dozens of financial terms.
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Basically the article is talking about the problem of Equity Index Annuities. Below are the 2 problems:
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- Market Upside Cap at 7% (Using recent market performance as an example)
2003 - Market up 28%, client capped at 7%
2004 - Market up 11%, client capped at 7%
2005 - Market up 05%, client gets the 05%
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- Periodic averaging
This dubious structure claims to give 100% market participation while shadily providing sub par returns. Returns are calculated by averaging index levels periodically during the year and then crediting the account based on the arithmetic average of the index levels.
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Looks like the performance of Equity Index Annuities is not an ideally investment especially for the route to financial freedom. What do you think?
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