Despite the presence of annuities, people often describe them as to only having fixed rates. But the truth is, annuity rates can differ depending on the type of annuity you are to avail. An annuity can either be immediate, fixed, indexed, and variable. On a fixed annuity, as what the name or term suggests, the rate at which your income grows is fixed. However, on an indexed annuity, the credits made on your account are based on either the Dow Jones Industrial Average Index or S&P 500 Composite Stock Price Index. Lastly, on a variable annuity, the growth rate varies depending on the mutual funds or investment options on which you choose to invest in.
On making their investment decisions, people often have questions on why to prefer variable annuities over immediate, fixed, and indexed annuities. Variable annuities are not used for solely minimizing the investment risks –that is not depending on one investment option – but are also used for maximizing your portfolio/investment potential. Unlike the other kinds of annuities, variable annuities enable people to diversify their investments by investing into different mutual funds –that is, they reduce the risk of having loss if one of the mutual funds becomes unprofitable. On the other hand, variable annuities maximize your portfolio/investment potential if the mutual fund’s rate of growth is higher than inflation rates and/or Composite stock price index.
But the type of annuity you should avail is the one that best fits you and your lifestyle. For those who needs their periodic payments soon, they should avail the immediate annuity, but for those who are smart enough and are aware of the market trends, they should avail variable annuities to maximize their investments.