Selection Strategies

Tracking Annuity Performance

The Benefits of Tracking the Performance of your Portfolios

The performance information used to choose your investment portfolios is equally valuable for tracking how well those portfolios continue to do.

Tracking Portfolios in Your Annuity Contract
All variable annuities' performance reports are submitted weekly by the annuity companies to the financial press, therefore you can track the performance of the subaccounts that you invested in.

These performance figures change constantly as the underlying investment portfolios increase or decrease in value, therefore the evaluation process is a dynamic one. It’s also relative, since current performance figures are only meaningful in relation to past performance of the same portfolio, or the comparative performance of one portfolio with another.

Consequences of Not Tracking
Perhaps because they are uncomfortable with making financial decisions, some people follow a hands-off policy once they’ve chosen their investment portfolios in their annuity contract. Experts caution that there is a potential downside to this approach, even though their annuity contract may continue to provide acceptable returns. If you had emphasized bond portfolios when purchasing an annuity contract in 1990 and transferred nothing to equity portfolios over the next several years, you would have missed out on the growth that accompanied the long bull market during this time period.

Call the Annuity Companies
Most annuity companies have toll-free numbers you can call to get performance figures on individual portfolios within each annuity contract. Many have lines that are automated, so you can check in 24 hours a day, seven days a week. In addition, many annuity companies also update performance figures on their websites on a regular basis.

That doesn’t mean you should hover over the phone or stay glued to your computer screen. Like all investments, an annuity contract with an equity portfolio, may be volatile in the short term, moving higher or lower to reflect the performance of its underlying investments. Since an annuity is a long-term investment, daily changes are far less relevant than the pattern of performance over time. In fact, the longer the time frame that’s covered, the better you can tell how the portfolio will do in up and down markets.

Many financial advisors suggest that you rebalance your portfolios on a regular basis, or arrange to have it done automatically. They suggest you rebalance both during the accumulation phase of a deferred variable annuity and after you begin to take variable income.

Advantages of Tax-Deferral
It’s quite easy to transfer funds from one portfolio to another within an annuity contract, and there are no income tax consequences when you make such a change, and most annuity companies permit a number of free transfers each year, as defined in your annuity contract. That’s one of the features that people find attractive about variable annuities. In addition, if you are putting money into variable annuities on a regular basis, you might want to diversify into additional portfolios. Or as you grow more confident about making long-term commitments, you might switch from one style of investing to another. You might begin by putting a large amount of money into a money market portfolio because of its safety. However, if you track a portfolio investing in U.S. stocks, you might decide you’d be better off moving some of the funds from the money market portfolio to the equity portfolio so that you could benefit from the potentially stronger performance of the equities.

Don't Look for Projections
As you evaluate past performance of the portfolios in your annuity contract, what you won’t find are projections of future performance. That’s because past performance is no guarantee of future results and so the rules and regulations do not allow this

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