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fixed annuities

Six Questions to Ask Yourself Before Making Any Investment

Categories: Finance, Investing

INVEST!There are many questions that one must answer before deciding on an investment product, otherwise, funds could be put at significant risk or not best allocated to fulfill individualized needs and goals. Making investment decisions isn’t easy, especially if you are uncertain of your options or if making those types of choices is new to you. There are a lot of details that many people don’t think about until it’s too late. So, if you want to avoid the pain of poor financial planning, ask yourself these questions:

1. “Why?” It’s a simple question, but it’s often the hardest one to answer. Why are you investing, and what do you hope to gain from it? In other words, you must set specific goals. Maybe you want to save for retirement, maybe you want to send your kids to college, or maybe you just want some breathing room from everyday expenses.  Whatever the reason, it’s important that you define why you are investing your money and what goals you wish to accomplish in doing so.

2. “What is my time frame?  When do I expect to need my money back?” The answer to these questions should have significant influence on the type of investment you choose. Most forms of investment, which you can cash out of at any time, such as stocks, bonds, and mutual funds, are subject to market risk, leaving you with the possibility of not getting back all that you invested. In other words, they do not protect your principal like the guaranteed fixed annuity products offered through Also, many other investment options have limited liquidity and may restrict the opportunities that you have to sell your holdings. Make sure you are aware of these details before making any final decisions.

3. “What am I going to get out of it…what earnings will I make?” What can you realistically expect to earn on your investments? Having unrealistic expectations, particularly as they pertain to the stock market, could leave you feeling frustrated or worse yet, unable to hit the targets of your financial plan. Most investment returns, as millions of people have experienced over the last decade, which are dependent upon the stock market, can rise or fall dramatically based on market changes. Other alternatives to consider, such as fixed index annuities will guarantee your principal while still allowing you to participate in a percentage of the stock market upside, without the downside risk. With a fixed index annuity, you have the option to make either a lump sum contribution or a series of contributions to fund the contract. The issuing insurance company guarantees both credited earnings and principal. This can be a smart choice in order to secure your retirement plans, by also giving you the ability to activate a guaranteed lifetime income stream.

4.“What’s my risk?” And here comes the basic balance in investing, risk versus reward. As a general rule, the higher the risk, the greater the potential reward. The key to fully understand the previous sentence is to pay particular attention to the word “potential.” When investing directly in the market, there is no guarantee that you will get your money back or receive the return projected by the representative that sold you the investment. Unless of course, you have your money in something stable and safe like a contractually guaranteed fixed annuity. Make sure that the risk you take is worth the potential reward that you expect to achieve.

5. “Is my money diversified?” We can all remember our parents at one point or another saying, “Now, don’t put all your eggs in one basket.” Well, your parent’s wise words ring true in terms of investments as well. Certain types of investments tend to do better than others in different economic environments, so by diversifying you are spreading your investment eggs across many baskets. That way if a certain industry tanks or sector is struggling, you will have plenty of other baskets holding your money safe and sound.

6. “What is the effect of taxes on my investments?” Let’s face it, many people view the topic of taxation as nightmarish and prefer not to think about it except during early April when they are trying to sort out their tax return for the year. But as unpleasant as the topic is, considering tax implications is critical in making investment decisions. You should know in advance how your investment returns are taxed and factor those details into your decision making process. One of the many beneficial features of fixed annuity products is that they grow tax deferred; none of your interest earnings are taxed until you withdraw the funds. This tax deferred feature allows each investor to individually decide “when” they want to withdraw money, at a time when it is most tax advantageous for them to do so.

Now that you know the questions to ask, it’s up to you to determine the answers. The important thing to remember is that there is no best answer to each question, but rather it is whatever is most appropriate to help you meet your individual needs and achieve your goals. Take the time to think through your decisions and all of the alternatives. There is no standard pathway to success when it comes to investing, but if you take the time to ask yourself these six questions, it will be a much smoother ride.