About Different Types of Annuities

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There are basically two types of annuities, which are fixed annuities and variable annuities. Discover how a variable annuity is exposed to the market, and how a fixed annuity is more of a contract with help from a licensed financial planner in this free video on the stock market and investing.

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Video Transcript

My name is Bill Rae. I'm with Alumni Financial Services. I've been in the finance of the business world for well over 20 years. The question is about different types of annuities. I'm going to tell you, speak in general terms today, the first thing I'd like to explain is if you understand the word annuity, substitute it with the word contract if you will for an easier understanding. There are basically two types. One is a fixed annuity, the other is a variable annuity. The variable annuity in general terms means that it is exposed to the market or it's exposed for loss if you will. A fixed annuity on the other hand is a contract that's designed where you cannot lose your principal. Now, in today's day and age, unlike the past, annuities come in all sites, all purposes for what you're attempting to get done. For instance, in the fixed annuity market, you can have your principal indexed as they call it, or tied to market-like returns. It's not invested in the market, but you can get market-like returns. The bottom line with annuities as any other type of investment vehicle is, you need to do a little homework. You need to make sure that you're dealing with a licensed person. Fixed annuities generally can be represented by a life insurance agent. Variable annuities, you have to have a special license for. What's important is that you know who you're dealing with. Understand that annuities are generally issued by life insurance companies, they are a contract, they come with certain guarantees but there are penalties for pulling it out early. Very much like getting a CD at your local bank. If you take a one year CD, six month CD, or a two year CD and you pull your money out early, there will be some loss of income. As always, when you're looking at any type of investment or any type of savings, know what the terms of the contracts are. Know what you expect back and more importantly, know who you're dealing with. Talk to an adviser such as us, but definitely seek outside counsel. My name is Bill Rae, Alumni Financial Services, and we're here to help you build wealth.

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