I was wondering if anyone would be kind enough to share any information they have on equity index annuities. I know that they are invested mostly in cash and the rest is invested in an option tied to an index. My questions are: Does anyone have a real life example of the current holds of one of they annuities? Is it advantageous create an equity index annuity like this? If you were to create on your own, you would be protected by downside risk. When would it not be advantageous to not use this strategy vs. buying the market index ETF? Thanks.
downside is the 3-5% commission you pay upfront and the capped returned percentage you’re allowed each year. with current rates you will like be capped around 6-7%. These rates will likely increase over the life of the product and depending how long you’re stuck in the contract though. there are a few different products that have multiple baskets you can invest in and allocate your money to which some people find appealing. its nice for those that need the principle protection to sleep at night but you’re better off with a structured product…typically lower upfront and yearly fees
Thank you very much for the reply. I was wondering if an individual can replicate the actual portfolio of these index annuities to bypass these constraints? Do you happen to know where I can find a transparent equity index portfolio? Thanks in advance.
Upfront commissions are way more than 3-5% for most of these things. Some are as high as 11%. Remember than there is no free lunch when it comes to these things. If you are going to put a floor in the contract (or an account) you are going to limit your upside because of the cost of the floor. You could do something similar using a stock index collar.
Aren’t they just a collar on the market? Just hold the underlying stock, buy a protective put, and write a covered call. http://www.optionseducation.org/strategy/collar.jsp