Fixed & Variable Annuity vs. Mutual Funds
Annuities and mutual funds often work in similar ways and can provide similar benefits. However, because of their similarities, there are many instances where the two can be confused.
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Function
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The purpose of annuities and mutual funds is to increase an investor's wealth. Annuities, both fixed and variable, are intended for retirement investing only, whereas mutual funds are not typically restricted or limited in such fashion.
Features
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Both variable annuities and mutual funds pool investor deposits into preexisting portfolios of stocks and bonds. Fixed annuities do not risk investor deposits in the market, but instead provide a predetermined flat interest rate.
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Time Frame
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Fixed and variable annuities are retirement products, and any money deposited into such accounts cannot be withdrawn without penalty prior to age 59½. Mutual funds, on the other hand, contain no such restrictions and can be liquidated at any time.
Benefits
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Variable annuities and mutual funds provide the opportunity for significant increases, yet also the possibility of severe declines. Fixed annuities, however, offer a stable and predictable rate of return.
Misconceptions
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Fixed and variable annuities are always retirement investments. However, mutual funds can be purchased individually in a brokerage account, or within an IRA, where their liquidation falls under similar rules to those of annuities.
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