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In
the graph below you will see where millions of Americans have
lost millions and millions of dollars putting their
hard-earned savings in mutual funds and in the
stock market. The USA Today reported:
An
EIA, like any annuity, is a contract with an insurance
company. Fixed annuities agree to pay you a set rate,
determined by the contract. Most have a minimum rate,
typically 3%, and your earnings are tax-deferred until you
withdraw them.
EIAs set their rates according to the
performance of a stock index, such as the Standard &
Poor's 500. A typical EIA might give you 85% of the annual
rise in the S&P 500, to a maximum 12% a year. Your minimum
rate would be 3%, even if the stock market falls.
EIAs are appealing because the stock market, in a
word, stinks. Had you invested $10,000 in the S&P 500
the past three years, you'd have lost 12% in 2001, lost 22% in
2002 and gained 29% in 2003, assuming dividends were
reinvested. A $10,000 investment would be worth $8,422. Had
you invested in the EIA above, you'd have earned 3% in 2001
and 2002, and 12% in 2003. Your account would be worth
$11,882.
Even with limited upside, eliminating the
downside is appealing, particularly in a long, nasty sideways
market. An EIA with a 12% cap and 3% floor would have
beaten the S&P 500 throughout parts of the snake-bitten
1970s.
Jim Waggoner writes for USA Today, July 30,
2004 edition |
