I own a Variable Annuity and the stock market has been setting all-time highs, but I am losing money. Can you review this product with me and tell me why it isn’t performing well?
I can’t tell you how many people come to me with this very question. Variable Annuities are products that are created by insurance companies that allow investors to invest in different sub-accounts and grow tax-deferred. These sub-accounts are basically mutual funds, but they are called sub-accounts within the Variable Annuity product. The sub-accounts are typically mutual funds that invest in stocks, bonds, money market instruments, or some combination of the three. What I have seen many times over my career in finance is that these products are sold and then forgotten. The investment choices within a variable annuity are very similar to investing through your 401k at work. You need to take an active approach to manage the assets within the annuity. These investments should be reviewed on a quarterly basis to make sure you are still properly allocated. I have seen many occasions where the money is invested in one fund and then left alone. Most recently, I had a couple come to me who owned a Variable Annuity from a reputable insurance company. Their original investment was $50,000 at the end of 2008. As of last week, the value of the contract was just over $39,000 and they have not taken any withdrawals. The question that comes to mind is how these people lost money when the U.S. stock markets more than doubled over this time period. The answer is neglect. Their investments were not managed correctly inside the annuity. This couple who are over 70 years of age had all their money sitting in an international fund. This particular fund lost money. When you couple bad performance with the fees variable annuities typically charge the outcome is almost always negative. Please take an active role in reviewing all your investments and ask questions.