Is Your Advisor PROVIDING YOU The Information Needed To Succeed?
How soon would you wish to know if your investment consultant wasn’t letting you know about the three major investment types? If you’ve only heard about two – Variable and Fixed, you might have a problem then. Unfortunately, many investment advisors routinely fail to present all three types: Variable, Fixed, and Indexed as valid investment choices to their clients. This is normally because they are unable to offer all three options or they have a personal dislike for just one or more of the investment types.
So what’s the difference in these investment types and what do the conditions mean? The simplest answer is that these terms specify how interest is gained on your investment. More specifically, it lets you know how your cash is invested and if your cash is shielded from market fluctuations. Let’s check out these various investment options. A Variable investment is one where your money is typically committed to shares or mutual money. The performance of the stocks or funds varies and it is not guaranteed – hence the term “variable investment.” Variable investments have many key benefits.
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They enable you to earn interest by purchasing a solitary company (individual stock), multiple companies, or a specific segment of the marketplace (mutual funds). You can even make investments in a whole Index like the Dow Jones or S&P 500. Also, variable investments allow for the greatest return and historically have outpaced all other investment options.
Sounds pretty good, right? It really is, as as you have the tolerance to lose money as well long. The volatility of variable investments is a major concern for many investors. The “upside” or development potential is almost unlimited, regrettably so is the “downside” or risk of losing money. An added undesirable factor that Variable investments face is the cost. Most have either fees or tons associated with the underlying investments.
These fees or loads can reduce the performance by as much as 3.5%, although 1-2% is more common. These fees or loads are applied in down years so it is certainly something to consider even. A SET investment offers a pre-determined or fixed interest for a specified period. This is most commonly seen with bonds, CD’s, annuities and universal life insurance coverage products. Fixed investments have three major advantages on the other available choices.
First, they offer a assured or known interest that is disclosed prior to making your investment. Second, fixed investments are usually made to protect your initial or principal investment. A SET investment also offers two major pitfalls. First, because they provide a guaranteed or known interest rate, they generally provide a lower rate than what may be available if you are willing to risk your principal. Second, they normally have restrictions or penalties associated with any withdrawals made during the fixed interest rates term period. This is also true with CD’s and annuities. Unlike Fixed and Variable investments, Indexed investments are relatively unique to the insurance and annuity marketplaces.
An Indexed investment stocks features of both Fixed and Variable investments, but with one major difference – how interest is gained. With an Indexed investment the fundamental money aren’t straight invested in the stock market or an Index, nor are they directly invested in a connection, CD, or other fixed investment. They are however, guaranteed by bonds or other conventional investments which give a minimum guaranteed interest similar to a fixed investment. Generally, this minimum amount or set rate is lower than what’s available in a solely fixed product. This is because Indexed products offer a higher maximum interest over Fixed investment products.
The Indexed products determine the maximum interest earned utilizing a formula predicated on three factors, all part of a choice purchased by the insurance or investment company. They will be the participation rate, the cap rate, and the reset period. The maximum interest earned provides “upside” potential while at the same time getting rid of “downside” risk. In essence, it is similar to having the development potential of the Variable investment with the “downside” protection of a Fixed investment. There is however a trade-off. An option, referred to as a call or put option sometimes, provides investment returns (interest earned) predicated on the growth of a particular market Index like the S&P 500 or Dow Jones.