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Today’s interest rates are a hot topic of conversation. With the 10-year treasury rate below 2 percent, many of your clients may be unsure of where or how to invest their hard-earned dollars.
Some may be hesitant to lock into an investment, especially with talk of how rates may follow the lead of some foreign investment rates — like many European countries — which have negative yields on 10-year government bonds. Others may be gun-shy because of the recent financial instability that followed Great Britain’s vote to leave the European Union.
Investments that used to be considered safe havens, such as off-shore accounts or even luxury properties, are no longer considered a sure thing by many advisors and clients. While some brokers may be unsure of what types of investments to propose to clients, those who sell fixed annuities have continued to see strong sales.
The reason for that is even with a low interest rate there are certain aspects of a fixed annuity investment that can’t be beat:
Safety
A fixed annuity helps prevent a client’s investment from being subjected to the yo-yo fluctuations of the stock market. A fixed annuity provides stability for an investment, and also allows for the principal investment to earn interest.
Tax deferral
While other investments are taxed, even when they don’t perform well, a fixed annuity isn’t taxed until funds are withdrawn or regular distributions start. This allows clients to ensure they are keeping their investments in the black — even during a down year.
Annuitization
An annuity provides a client with the ability to turn an investment into a liquid income stream at a time of his or her choosing. Unlike other investments where there can be difficulty in retrieving funds when they’re needed, a fixed annuity has payout options built into the purchase.
Rate of return
Not only does a fixed annuity provide a safe haven for an investment, but it also provides a guaranteed rate of return from which a client can benefit. A client’s principal investment can earn interest three ways: interest on principal, interest on interest and interest on tax savings. This can help maximize earnings so a client can get the most out of his or her principal investment.
For many clients, purchasing a fixed annuity focuses less on what the overall yield would be, and more on what other safe money alternatives are doing. By counseling clients to purchase a fixed annuity, your clients may see more black and less red the next time you analyze their investment portfolios.
See also:
Indexed annuities sales fall short of record: Wink
Top 10 annuity providers: Q2 2016
Fed’s Williams: Two rate increases still possible in 2016
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Annuities: Your go-to financial vehicle in a low-interest-rate environment
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