Hard Lesson on Annuities
This month I'm overhauling my personal finances completely. I want to get back on track, and sites like this one have been a tremendous help.
So, I'm going to share my "biggest blunder" with the group, in hopes that others can learn from my mistake, and/or shed new light on the subject.
Back in 2001 my financial advisor called to recommend that I liquidate most of my stocks and buy an annuity. At the time I was in my 30's and relied heavily on my advisor's advice. I trusted her.
In her defense, I probably saved some money as the stock market was turning down quickly. But, in retrospect an annuity was the wrong investment for me, and I now believe her recommendation was primarily self-serving. She left the brokerage firm shortly thereafter.
Why do I feel an annuity was a poor choice? First, an annuity offers tax shelter, but the annuity was purchased in an IRA account which is already, by definition, tax sheltered.
Secondly, I was only 35 years old, and too young in my opinion to lock in the money in an annuity contact. It meant I was no longer free to use the money in other investments later on.
How did I get into the mess? Foremost, I take responsibility for not fully understanding the investment. As many have written, always understand what you are getting into. In addition, I put too much trust in my broker. I have since learned that commision-based brokers have a goal to maximize their profit, not yours. Today I use only fee-based advisors.
Hal
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