Why Annuities are Better Than Mutual Funds

During the existence of annuities, especially of variable annuity as an investment management contract, it has been attacked by people who don't believe in its values. More often than not, it has been compared with other, different ways of investing money. One of its biggest competitor are mutual funds, and variable annuity, being also vulnerable to market changes the way mutual funds are, are often compared to it.

First, what are mutual funds? Mutual funds are investment accounts wherein you enter your money and the funds are combined with the investments of other people. The funds will then be left in the care of a professional handler who is the one who makes the investment decisions. This means that the person has control over the money. The money manager will be the one to invest the mutual funds into different investment options such as bonds, stocks, and others.

Mutual funds are great ways to invest your money, but the downside is that using this investment option is undeniably quite risky. The upside is that mutual funds are quite flexible. You can move your investments and even trasnfer them into annuities. If you are interested to invest in mutual funds, you will need to pay an investment fee, which is primarily a fee for the investment management aspect of the fund.

Compared to mutual funds, annuities, especially variable annuities, are more flexible. Although mutual funds allow you to move investments around, in mutual funds, there will be a handler that provides much of the risk. If something goes wrong with the money manager, your fund can also be easily in danger, unlike in variable annuity where you retain control over the funds and the performance of the funds does not depend on a third-party person. A variable annuity also gives you tax-deferred earnings. Thus, if you don't need the earnings, you can leave it in your annuity contract and you won't have to pay tax for those earnings for the year.

Annuity contracts also offer guaranteed payouts, which are not offered by mutual funds. The guaranteed payouts will be given to you whether immediately after your contract is finalized or at a later time that you choose. These setups are respectively called immediate annuity and deferred annuity. Thus, whereas mutual funds are long-term investment options purely, annuities can be arranged to have two purposes: a short-term and a long-term one. In the short term, annuity contracts can break your investments down into certain amounts released to you on a monthly basis, thus ensuring that you can receive something from the investment to support you every month. In the long term aspect, an annuity contract can provide you with financial security up until you are retired, or even until you die.

Based on the comparisons made above, it is clear that both investment options offer their own perks. But if you are choosing between an annuity and a mutual fund, you will do much better with annuities, unless you have a special need for mutual funds. If not, annuities are ultimately more beneficial than mutual funds in general.