Variable annuities – historical averages


Posted March 19th, 2010 by admin

Writing about the historical returns of a variable annuity is a little tricky. First, you have to identify the annuity and the underlying funds. Each variable annuity has different results based on the fund results. Not every annuity contains the same mutual funds on the interior of the policy. Generally, you can find the historical returns of each fund and translate that to the funds contained in the annuity.

There will be differences in the fund returns from the non-annuity counterpart.  One of the differences occurs with the inception date.  The inception date for the fund inside the annuity is the date that the fund entered the product, not the date the company created the original fund. The fee structure is also different for the funds in the annuity.  Considering those factors, variable annuities’ returns vary dramatically, depending on the underlying returns on the investments inside the variable annuity.

Just because an annuity has excellent funds, it doesn’t mean that the annuity return will be better than another annuity’s. How the investor divides the money inside the annuity makes a great deal of difference. Younger investors tend to put more money in the stock market. On great years, they’ll see a substantially higher return than those that diversified funds and divided them equally amount fixed instruments, bonds and stocks.

The diversified investor that had an equal blend of stocks, bonds and fixed instruments are more likely to see either less loss or higher returns in market years where the bear ruled the market. The lower mix of stocks in the portfolio and higher amount of bonds often works well in a dropping market environment.

Many of the newer variable annuities offer a prepared portfolio based on risk and age of the investor. For those that want a mildly conservative investment, a blend of 50 percent stock and 50 percent bonds, historically the returns are approximately 7 to 8 percent. The more aggressive investor with predominantly stocks might see a 10 to 11 percent return over the lifetime of the contract. However, these returns also vary by the timing of the initial deposit and the withdrawal.