Thursday, April 07, 2005
That is the age old question. In fact, a similar type question is asked when people consider investing in the market...Should I invest now or wait until it comes down. Now as much as you might think that rates are going up, or the market is coming down, the answer is, you never know.
Interest rates don't always do what we expect them to do. Furthermore, sometimes future rate hikes are already priced in. That's why often when Greenspan raises rates, market interest rates don't always necessarily get higher. In fact, if the market anticipates a higher interest rate hike and doesn't get it, CD and annuity rates come down AFTER RATES GET RAISED. Furthermore, much of the time, the stock market doesn't do what we expect it to do either.
No matter what the case, investing should be done based on a plan. The same goes for annuities. Someone looking to get into fixed, variable, or equity indexed annuities should do so according to a plan, not the market. The market can change in a heartbeat...one terrorist attack can send the market tumbling and one great event can send the market soaring. Therefore, it never makes sense to invest based on market conditions. Rather, it makes sense to invest based on a plan. And waiting only makes sense if your plan calls for waiting.
With that in mind, here is soemthing that may help when it comes to fixed annuities and indexed annuities. While we don't know what the market is going to do tomorrow, we do know that the market is constantly changing. When investing in annuities, the way to take advantage of ever-changing markets is to have annuities come due in certain time periods. It is a strategy better known as laddering. If you adjust your annuity portfolio such that there are annuities coming due every one to two years (ex. a 5 year, 7 year, and 9 year annuity), you can re-evaluate your decision every couple of years starting in year 5. Furthermore, if rates are worse in 5 years and you can't get anything better, there may be continuation provisions in your 5 year annuity. Furthermore, you have your 7 and 9 year annuity that you picked up when rates were better in the past that are still working for you. And if rates are better, then you can take advantage of them at the time.
Again, this is not meant to be financial advice, but just an idea to consider. Often times, too many people put all of their money in to one 10 or 15 year annuity. This does not allow flexibility, if that is what you want. Again, if your situation calls for one annuity for a long time period, no problem. But if you want the opportunity to take advantage of different markets at different times, then take a look at laddering your annuities, just like someone would ladder bonds or CD's.
Ignorance is Not Bliss!!!