Variable Annuity Instead of Cash
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You know how most standard porfolio models always allocate a portion to cash, bonds, and equities…do you think it would be suitable and advisable to completely substitute the cash portion of the portfolio with a variable annuity that has a guaranteed minimum annual increase? Couldn’t you get all the advantages of cash (low risk) but still invest in equities within the annuity to increase the cash value? I know there are a lot of annuities that will ratchet the greater of 6% (for example) or whatever the market performs.
Thoughts?I could see putting the variable annuity for the bond portion, but not the cash.
Cash is liquid, annuities are not. Cash is going to hold its value; annuities can go down.
The big advantage of cash is access at any time. This is lost inside of a VA. I’m with Buyandhold. I like VAs for qualified money in the situation that the guarantees allow one to invest above their natural risk tolerance.
Akkula–you do know the “ratchet” and the “guarantee” are not on the amount invested (as a return)? You make it sound like the $ put in the VA is guaranteed to grow.
Sorry, I probably should have said I was thinking in terms of a longer term, retirement type of account where the person is most likely to take the benefit in the form of a longer term payout anyhow and where short-term liquidity is not the paramount concern.
What do you think are the best companies/riders to look at to execute this type of strategy?The guarantees are only as good as the claims paying ability of the company. Additionally, the price of the guarantees isn’t guaranteed. Therefore, the first thing that I would do is to make sure to use a top company.
Secondly, I still believe that the strength of the guarantees is in how they impact investor behavior. GMABs are usually less expensive than GMIBs and GMWBs so I use GMABs. My typical strategy is to take conservative qualified money and put it inside of a VA and invest it aggressively. If it does very well, we will then get more conservative to match the client's risk tolerance. Otherwise, we'll stay aggressive.[quote=Akkula]Sorry, I probably should have said I was thinking in terms of a longer term, retirement type of account where the person is most likely to take the benefit in the form of a longer term payout anyhow and where short-term liquidity is not the paramount concern.
What do you think are the best companies/riders to look at to execute this type of strategy?[/quote] Depends, how long is this "long term retirement portfolio" that you're talking about?