A recent study completed by the advantage Compendium was quoted as reporting that over a 5 year period the performance of a fixed Indexed Annuity tied to the S&P 500 outperformed bank CD's and S&P 500 index funds. The five year study found that indexed annuities overall increased by 5.4% per year over the 5 year time period. This beat inflation and resulted in a real growth of asset value in the study period. The Bank CD rates averaged 2.78% per year over the 5 year period. The comparison was based on sequential one year CD's. A 5 year CD would have improved on the Bank CD yield but would not have doubled the effective yield. So even compared to a five year CD the indexed annuity out performed the CD. According to Bankrate.com website the most recent national average one year CD rate is 3.48% and the most recent 5 year rate is 3.88 or a 0.4% difference in annual yield.
The study went on and pointed out that the 5 year performance of an S&P indexed fund with a 0.15% management expense ratio performed at a rate of 5.05%. The study data actually was generated before the most recent market turbulence. What would the data look like if we went back 5 years from todays date?
Why might a smart client want to consider a Fixed Indexed Annuity for some portion of their Safe Money Assets? Several key reasons come to mind Inflation beating performance. Market Risk Free financial growth. Tax deferred growth.
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