How do you choose the right vehicle for your investment needs?
Understanding all your options is critical to making a smart decision. As a potential investor, are you comfortable with your knowledge of the basic types of investments available to you?
Know your options
A simple understanding of the basic investment options can help you make smarter decisions about how you invest your money.
An annuity is an insurance contract and a securities investment component that provides regular periodic payments for a specified period of time. Features of annuities include:
Note with a guaranteed minimum income option, if you die prior to the end of the annuity phase, your account value at time of death may affect the value of your death benefit. All guarantees with annuities are based on the claims-paying ability of the issuing company.
Annuities are available with a wide range of options and possibilities, each serving different purposes for different types of investors. Fixed annuities, for example, offer investments with a guaranteed rate of interest for a specified time period; while variable annuities typically offer a range of investment options, allowing you to be more aggressive or conservative.
An annuity offers options under an insurance contract that includes mortality and expense risk charges as well as providing for lifetime payments. An annuity is a long-term investment designed for retirement purposes.
Early withdrawals may be subject to a deferred sales charge and if taken prior to age 59½, an IRS 10% premature distribution penalty tax may apply. Money distributed from an annuity will be taxed as ordinary income in the year the money is received.
Employer Sponsored Retirement Plans
Employer sponsored retirement plans, considered one of the most effective retirement savings plans, are commonly known as 401(k), 403(b) or 457(b) Deferred Compensation plans (depending on the type of employer). Typical features include:
Employer sponsored retirement plans typically offer different investment options and contribution limits. With some plans, your employer may match a percentage of what you contribute to the plan – adding to your savings. Note that early withdrawals are generally permitted from most plans; however, a penalty is usually involved, as well as ordinary income taxes.
An IRA, or Individual Retirement Account, is similar to an employer retirement plan, but you set it up for yourself. Typical features of an IRA include:
A mutual fund is an investment vehicle managed by a professional money manager that allows a group of investors to pool their money together with a predetermined objective. Mutual funds range from conservative investments, such as money market funds, to those that invest in more aggressive options, such as new technologies and emerging markets. Among the benefits of mutual funds are:
Important Note: Variable annuities and mutual funds are subject to investment risk, are not guaranteed, and will fluctuate in value. In addition, there is no guarantee that any investment option will meet its stated objective.
A Government Bond is an investment guaranteed by the U.S. government (the issuer) and typically held for 10 to 30 years. When held to maturity, they offer value of principal and a fixed rate of return, which varies depending on the type of bond purchased.
The return and principal value of investing in a stock mutual fund or variable annuity funding option fluctuates with changes in market conditions. Stocks may offer greater growth potential in comparison to bonds, but carry more risk. The principal value of a bond varies inversely to the rise and decline of interest rates. Bonds typically offer a fixed rate of return, if held to maturity. However, bonds may contain a call feature that may be exercised prior to maturity.
Certificate of Deposit (CD)
A CD is a savings vehicle offering a fixed rate of return (like a government bond), but can be purchased from banks, which means it is FDIC insured. When your investment matures (either in months or years, depending on the CD you purchase), you can cash in the CD and receive its face value, plus the interest.
Bank certificates of deposit are FDIC insured up to applicable limits and offer a fixed rate of return.
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