[Alex]

However, as interest rates and inflation have been so high, my advisor presented me with an index annuity that has no fees and a 10.5% cap.

Despite not participating in huge positive years in the market, it seems like a good deal.

I Am actually considering it as a more conservative investment in my portfolio. (He gets paid from the insurance company from the spread on their end). Thoughts?

[Matt]

Double check the index used… the cap is tough to hit sometimes if using a conservative index.

The regular S&P index is usually much lower. Can expect a fixed annuity rate most likely in the end with the averages.

Also, the cap rate CAN change sometimes depending on the contract.

[Bill]

Just so you know, if you buy this garbage, the forms you will be required to sign have clauses that say whatever the salesperson told you is completely unenforceable and used for illustration purposes only. There will be a couple hundred pages of legal small print spelling out the actual terms. Eg the 10.5% is going to be a lie.

It won’t be just an annual cap. It will be broken down into smaller periods and capped further that way. They may even total to 10.5% on paper, but you will never get that unless the market is up 1% every month.

If the market goes up 10% in one month, you are probably capped down at 0.75%. And that’s how the market usually moves.

Most of the annual gains are concentrated in just a couple days per year.

[Cody]

No Fees = Capped return upside, no investment distributions, no favorable tax treatment (if non-qualified), surrender fees.

If you’re going to buy this product, consider using a fee-only version with no commission. If he didn’t get paid to sell it, would it have come up?

[Colin]

Yikes. “Despite not participating in huge positive years in the market, it seems like a good deal.” “He gets paid.” Just invest it yourself without paying someone else for worse returns.

[Author]

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