Kiplinger

Know These 3 Things Before You Invest in a Fixed-Indexed Annuity

With interest rates as low as they've been lately and stock markets as volatile as we've been seing, the stage appears to be set for a different kind of investment: fixed-indexed annuities (FIAs).

Created more than 20 years ago, FIAs salved the wounds of many investors who had their portfolios whipsawed by the great recession. Offering some upside potential with a guarantee against losses, these investments are principally a trade-off: You transfer some risk to the issuing insurance company in return for limited participation in the gains of an index. On the other hand, equities offer more growth, but ... they can't guarantee anything.

Because of the low interest rate environment, finance experts like Dr. Wade Pfau and economist Roger Ibbotson have recommended that financial advisers and their clients think of FIAs as another asset class, framing them as an alternative to fixed-income investments like bond funds. Dr. Pfau believes that the guarantees afforded by FIAs may be especially beneficial for retirees during volatile conditions, saying that "This protection may make it easier to retire successfully in down market environments."

It's easy to see how they could appeal to investors. As

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