Why The Variable Annuity Is Losing Ground With Young Investors!

Not long ago, those with less than a $1000.00 had few investment options. Young people without adequate savings were stuck with the variable annuity or CD, outside of their company sponsored retirement plan, in order to attempt to earn a rate of return greater than their individual bank account. The mutual fund industry got wise and created asset allocation funds that contain several funds for greater diversification.

Before the asset allocation funds, the variable annuity sort of looked attractive for young people starting a qualified retirement investment portfolio with little money. Unfortunately, the non-qualified annuity presents some tax issues that many cannot swallow. There is the 10% early withdraw fee for age pre 59 1/2 with a few exceptions (these generally apply to qualified variable annuities). In these instances, a bank CD could be a more useful investment option to satisfy short-term goals.

With the creation of asset allocation mutual funds, individuals can invest in a retirement or non-qualified account with as little as $25 a month. This can be a good retirement vehicle for those with little assets and provide diversification based on an individual's risk tolerance.

*Disclaimer: This article does not constitute financial advice. Always consult a tax advisor or financial advisor when making investment decisions.