shotgunner
Full time employment: Posting here.
- Joined
- Jun 18, 2008
- Messages
- 534
A lot of VAs are indeed invested in equities and any that were would have been crushed with the rest of us. It sounds like this type of VA is invested in something more akin to GICs or stable value funds with perhaps a bond component as well.Must be more than one kind of "variable annuity".
Basically I think some of these insurance companies were making a bet that long term 10-11% returns in the market were here to stay -- maybe more than that with the "magic" of leverage -- and they priced low-risk stuff to reflect that, figuring they could still make a profit on the money long-term even if they guaranteed 6% or more.Not really; reread the article.
My brother who pays no attention to investment dogma but knows a one sided bet when he sees it bought one of these. Needless to say, it beats the hell out of my results.
Plus, you can still make excellent returns with no risk in an EIA.
Do the folks who sell EIA's make good commissions off them?They are excellent accumulation products though.
Yeah, no kidding. Is something a bargain when it goes from being grossly overpriced to merely expensive? Like Neiman Marcus having a "sale"?Do the folks who sell EIA's make good commissions off them?
And he has enough credibility to know what he's talking about. I can understand why an ER with no pension would buy a VA (as insurance) to ensure a bare-minimum living standard.So two and a half years ago, Prof. Milevsky updated his research, making an about-face: "Some insurance companies are not charging enough," given the cost of risk-management instruments that insurers can buy to protect themselves, he wrote in 2007 in Research Magazine.
Had they existed in the 1970s and early 1980s, most EIAs would have done little more than return the initial investment even as inflation was 6%, 8%, 10% or more for many years. It wasn't much different than cash under a mattress. In REAL dollars, someone who put money into an EIA for 10 years starting in about 1972 would have been slaughtered.In an EIA, the owner takes no risk.
Variable Annuties are not cousins to EIA'a. They are no way like an EIA. In a VA, the owner takes all the risk. In an EIA, the owner takes no risk. Plus, you can still make excellent returns with no risk in an EIA. The KEY in this and in anything pertaining to investing is simple: Don't lose money in down years.
john