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Fixed vs. Variable Annuities

Fixed vs. Variable Annuities

Annuity products have grown more sophisticated over the years to meet the demands of today’s more sophisticated investors. Just as mutual funds grew in popularity as an alternative to certificates of deposit, the variable annuity was developed as an alternative to the fixed annuity. Variable annuities offer potentially higher returns than fixed annuities. Of course, there is a risk of loss as well. So, deciding which annuity product to invest in often comes down to deciding how much risk you are willing to take.

Fixed annuities provide certain guarantees

When you purchase a fixed annuity, the issuer guarantees that you will earn a minimum interest rate during the accumulation phase and that your premium payments will be returned to you. If you annuitize the contract (i.e., take a lifetime or other distribution payout option), the issuer guarantees the periodic benefit amount you will receive during the distribution phase. (Guarantees are subject to the claims-paying ability of the issuing insurance company.) The interest rates earned during the accumulation phase will reflect current fixed income rates, changing periodically. During the distribution phase, the payment is based on the prevailing interest rates at the start of the distribution phase, and then remains constant. This fixed payment may lose purchasing power over time due to inflation. Consequently, many investors are hesitant to lock in a fixed annuity payout rate.

Variable annuities provide growth opportunities instead of guarantees

When you purchase a variable annuity, the annuity issuer offers you a choice of investment options in what are known as subaccounts. The issuer may offer many different types of asset classes such as stock, bond, and money market funds. The issuer of a variable annuity does not guarantee or project any rate of return on the underlying investment portfolio. Instead, the return on your annuity investment depends entirely on the performance of the investments that you select. Your return may be greater than or less than that of a fixed annuity. However, if you die before you begin receiving annuity distributions, your heirs will receive at least as much as the total of your premium payments, regardless of the annuity value.

If you elect to annuitize and receive periodic distributions from your variable annuity, you can choose to receive either a fixed payout (like with a fixed annuity as previously discussed), a variable payout, or a combination of the two. If you select a variable payout, then the amount of each payment will depend on the performance of your investment portfolio. If the portfolio increases in value, then your payments will increase as well. Most annuity issuers offer a third option that allows you to lock in a minimum fixed payment every month, with the possibility of an additional variable payment based on the performance of your investment portfolio. By allowing your principal to remain in investment accounts during the distribution phase, you have the continued opportunity to benefit from rates of return that are higher than what would have been received with a fixed annuity. But remember, you also run the risk that your payout could be lower if your investment choices do not perform well.

Which is better?

First, make sure that an annuity is appropriate for you. Annuities are long-term savings vehicles used primarily for retirement. There are many advantages to annuities, but there are drawbacks, too. These include a 10 percent tax penalty on earnings distributed before age 59½, and the fact that all earnings are taxed at ordinary rather than capital gains rates. If an annuity is right for you, then the choice between fixed and variable annuities will depend on your situation and preferences.

Usually, choosing between the two comes down to your risk tolerance and the amount of control you want over investment decisions. With a fixed annuity, there is little risk. You know what you’re going to get out of the annuity. However, the growth potential of a fixed annuity is limited. A variable annuity, on the other hand, has a much greater potential for growth (although with this growth potential, there is a greater potential for loss). You also have the opportunity to make the investment decisions that will impact the growth of your annuity. How much risk you can comfortably accept, and your ability to manage your investment, will help you choose between a fixed and a variable annuity.

Still have questions?

If you still have questions on the differences between fixed and variable annuities, contact us today and set up a consultation and let us help you create a financial investment plan that works for you.

Note: Annuity withdrawals and distributions prior to age 59½ may be subject to a 10% federal tax penalty unless an exception applies.


Note: Variable annuities are long-term investments suitable for retirement funding and are subject to market fluctuations and investment risk, including the possibility of loss of principal. Variable annuities contain fees and charges including, but not limited to, mortality and expense risk charges, sales and surrender (early withdrawal) charges, administrative fees, and charges for optional benefits and riders.


Note: Variable annuities are sold by prospectus. You should consider the investment objectives, risk, charges, and expenses carefully before investing. The prospectus, which contains this and other information about the variable annuity, can be obtained from the insurance company issuing the variable annuity, or from your financial professional. You should read the prospectus carefully before you invest.

Investing for Major Financial Goals

Investing for Major Financial Goals

Go out into your yard and dig a big hole. Every month, throw $50 into it, but don’t take any money out until you’re ready to buy a house, send your child to college, or retire. It sounds a little crazy, doesn’t it? But that’s what investing without setting clear-cut goals is like. If you’re lucky, you may end up with enough money to meet your needs, but you have no way to know for sure.

How do you set goals?

The first step in investing is defining your dreams for the future. If you are married or in a long-term relationship, spend some time together discussing your joint and individual goals. It’s best to be as specific as possible. For instance, you may know you want to retire, but when? If you want to send your child to college, does that mean an Ivy League school or the community college down the street?

You’ll end up with a list of goals. Some of these goals will be long term (you have more than 15 years to plan), some will be short term (5 years or less to plan), and some will be intermediate (between 5 and 15 years to plan). You can then decide how much money you’ll need to accumulate and which investments can best help you meet your goals.

Looking forward to retirement

After a hard day at the office, do you ask, “Is it time to retire yet?” Retirement may seem a long way off, but it’s never too early to start planning–especially if you want your retirement to be a secure one. The sooner you start, the more ability you have to let time do some of the work of making your money grow.

Let’s say that your goal is to retire at age 65 with $500,000 in your retirement fund. At age 25 you decide to begin contributing $250 per month to your company’s 401(k) plan. If your investment earns 6 percent per year, compounded monthly, you would have more than $500,000 in your 401(k) account when you retire. (This is a hypothetical example, of course, and does not represent the results of any specific investment.)

But what would happen if you left things to chance instead? Let’s say you wait until you’re 35 to begin investing. Assuming you contributed the same amount to your 401(k) and the rate of return on your investment dollars was the same, you would end up with only about half the amount in the first example. Though it’s never too late to start working toward your goals, as you can see, early decisions can have enormous consequences later on.

Some other points to keep in mind as you’re planning your retirement saving and investing strategy:

  • Plan for a long life. Average life expectancies in this country have been increasing for many years. and many people live even longer than those averages.
  • Think about how much time you have until retirement, then invest accordingly. For instance, if retirement is a long way off and you can handle some risk, you might choose to put a larger percentage of your money in stock (equity) investments that, though more volatile, offer a higher potential for long-term return than do more conservative investments. Conversely, if you’re nearing retirement, a greater portion of your nest egg might be devoted to investments focused on income and preservation of your capital.
  • Consider how inflation will affect your retirement savings. When determining how much you’ll need to save for retirement, don’t forget that the higher the cost of living, the lower your real rate of return on your investment dollars.

Facing the truth about college savings

Whether you’re saving for a child’s education or planning to return to school yourself, paying tuition costs definitely requires forethought–and the sooner the better. With college costs typically rising faster than the rate of inflation, getting an early start and understanding how to use tax advantages and investment strategy to make the most of your savings can make an enormous difference in reducing or eliminating any post-graduation debt burden. The more time you have before you need the money, the more you’re able to take advantage of compounding to build a substantial college fund. With a longer investment time frame and a tolerance for some risk, you might also be willing to put some of your money into investments that offer the potential for growth.

Consider these tips as well:

  • Estimate how much it will cost to send your child to college and plan accordingly. Estimates of the average future cost of tuition at two-year and four-year public and private colleges and universities are widely available.
  • Research financial aid packages that can help offset part of the cost of college. Although there’s no guarantee your child will receive financial aid, at least you’ll know what kind of help is available should you need it.
  • Look into state-sponsored tuition plans that put your money into investments tailored to your financial needs and time frame. For instance, most of your dollars may be allocated to growth investments initially; later, as your child approaches college, more conservative investments can help conserve principal.
  • Think about how you might resolve conflicts between goals. For instance, if you need to save for your child’s education and your own retirement at the same time, how will you do it?

Investing for something big

At some point, you’ll probably want to buy a home, a car, maybe even that yacht that you’ve always wanted. Although they’re hardly impulse items, large purchases often have a shorter time frame than other financial goals; one to five years is common.

Because you don’t have much time to invest, you’ll have to budget your investment dollars wisely. Rather than choosing growth investments, you may want to put your money into less volatile, highly liquid investments that have some potential for growth, but that offer you quick and easy access to your money should you need it.

Are you ready to set your financial goals?

If you’re looking for a team of financial advisors and investment advisors you can trust to help you reach your goals, contact the experts at Sterling Group today

Investment Planning: The Basics

Investment Planning: The Basics

Why do so many people never obtain the financial independence that they desire? Often it’s because they just don’t take that first step–getting started. Besides procrastination, other excuses people make are that investing is too risky, too complicated, too time consuming, and only for the rich.

The fact is, there’s nothing complicated about common investing techniques, and it usually doesn’t take much time to understand the basics. The biggest risk you face is not educating yourself about which investments may be able to help you achieve your financial goals and how to approach the investing process.

Saving versus investing

Both saving and investing have a place in your finances. However, don’t confuse the two. With savings, your principal typically remains constant and earns interest or dividends. Savings are kept in certificates of deposit (CDs), checking accounts, and savings accounts. By comparison, investments can go up or down in value and may or may not pay interest or dividends. Examples of investments include stocks, bonds, mutual funds, collectibles, precious metals, and real estate.

Why invest?

You invest for the future, and the future is expensive. For example, college expenses are increasing more rapidly than the rate of overall inflation. And because people are living longer, retirement costs are often higher than many people expect.

You have to take responsibility for your own finances, even if you need expert help to do so. Government programs such as Social Security will probably play a less significant role for you than they did for previous generations. Corporations are switching from guaranteed pensions to plans that require you to make contributions and choose investments. The better you manage your dollars, the more likely it is that you’ll have the money to make the future what you want it to be.

Because everyone has different goals and expectations, everyone has different reasons for investing. Understanding how to match those reasons with your investments is simply one aspect of managing your money to provide a comfortable life and financial security for you and your family.

What is the best way to invest?

  • Get in the habit of saving. Set aside a portion of your income regularly.
  • Invest in financial markets so your money can grow at a meaningful rate.
  • Don’t put all your eggs in one basket. Though it doesn’t guarantee a profit or ensure against the possibility of loss, having multiple types of investments may help reduce the impact of a loss on any single investment.
  • Focus on long-term potential rather than short-term price fluctuations.
  • Ask questions and become educated before making any investment.
  • Invest with your head, not with your stomach or heart. Avoid the urge to invest based on how you feel about an investment.

Before you start

Organize your finances to help manage your money more efficiently. Remember, investing is just one component of your overall financial plan. Get a clear picture of where you are today.

What’s your net worth? Compare your assets with your liabilities. Look at your cash flow. Be clear on where your income is going each month. List your expenses. You can typically identify enough expenses to account for at least 95 percent of your income. If not, go back and look again. You could use those lost dollars for investing. Are you drowning in credit card debt? If so, pay it off as quickly as possible before you start investing. Every dollar that you save in interest charges is one more dollar that you can invest for your future.

Establish a solid financial base: Make sure you have an adequate emergency fund, sufficient insurance coverage, and a realistic budget. Also, take full advantage of benefits and retirement plans that your employer offers.

Understand the impact of time

Take advantage of the power of compounding. Compounding is the earning of interest on interest, or the reinvestment of income. For instance, if you invest $1,000 and get a return of 8 percent, you will earn $80. By reinvesting the earnings and assuming the same rate of return, the following year you will earn $86.40 on your $1,080 investment. The following year, $1,166.40 will earn $93.31. (This hypothetical example is intended as an illustration and does not reflect the performance of a specific investment).

Use the Rule of 72 to judge an investment’s potential. Divide the projected return into 72. The answer is the number of years that it will take for the investment to double in value. For example, an investment that earns 8 percent per year will double in 9 years.

Consider working with a financial professional

Whether you need a financial professional depends on your own comfort level. If you have the time and energy to educate yourself, you may not feel you need assistance. However, don’t underestimate the value of the experience and knowledge that a financial professional can offer in helping you define your goals and objectives, creating a net worth statement and spending plan, determining the level and type of risk that’s right for you, and working with you to create a comprehensive financial plan. For many, working with a professional is the single most important investment that they make.

Review your progress

Financial management is an ongoing process. Keep good records and recalculate your net worth annually. This will help you for tax purposes, and show you how your investments are doing over time. Once you take that first step of getting started, you will be better able to manage your money to pay for today’s needs and pursue tomorrow’s goals.

Finding a professional you trust starts here

At Sterling Financial, we provide you with the tools and resources you need to make the best financial decisions. Connect with our financial advisement firm today for a consultation.

Where the Best Rental Markets Are in 2020  

Where the Best Rental Markets Are in 2020  

Real estate is one of the most important and potentially the most common types of investment vehicles today. Because there is a limited amount of property available, it tends to be a bit less risky than other investments. Yet, today, there are more people than ever renting instead of buying their home. That opens the door for more rental investments than before. But where are the best rental markets in 2020?

Where the Most Growth Is Occurring

When it comes down to it, there is a range of rental markets in the U.S. that are solid investment opportunities. For those looking for the fastest growing or most in-demand markets, consider these.

#1: Orlando, Florida

Perhaps the best place for both short-term and long-term rentals, Orlando, has long been an in-demand place to own real estate. People want to take advantage of all of the tourism here.

#2: Tampa, Florida

The warm temperatures and more moderate home prices, along with a lower cost of living than other Florida cities, makes Tampa a must-see for property investors.

#3: Jacksonville, Florida

Yet a third best place to own rental property in Florida, Jacksonville has a range of benefits to offer. It has more affordable home prices and rental prices, but it remains close enough to everything. It is also a good place for winter vacationers.

#4: Huntsville, Alabama

This one may shock you, but the area has seen incredible growth in recent years due to a growing tech and financial sector. As a result, there just are not enough homes for sale here. And, with a heavy Millennial makeup, renting is the route many people take here.

#5: Dallas, Texas

The weather is ideal, the economy is thriving, and the region offers the stability that many desire. The housing market has a few limitations for those buying their home, which makes renting a home here a very desirable step.

Find the Right Real Estate Investment for You

Investing in real estate in many areas can be a very lucrative opportunity. To make it successful, though, you need to have guidance and support. Our team at Sterling Financial wants to help you. Contact us to learn more about the opportunities we see.

5 Ways to Invest Money Wisely  

5 Ways to Invest Money Wisely  

When you are ready to start investing, you may be overwhelmed with the numerous options and methods available to you. How do you know which method is really the best fit for your goals? There are a few things to do. First, you need to invest as soon as possible, automate the process to ensure you are consistent and create both short and long-term savings goals. Once you do this, you can begin to consider a few common methods to invest money wisely.

#1: Start with Savings Vehicles

Your financial institution can offer some basic investment strategies for you. For example, certificates of deposit work very well for those who are just starting out. Put a bit of money away and earn a small investment back.

#2: Consider Mutual Funds

Mutual funds are very much like traditional savings accounts, but you are investing in a fund. That means there is more opportunity to grow your balance faster. It also means you have new opportunities for building diversification.

#3: Consider Real Estate

If you are looking for a wise investment for a chunk of money you have, think about investing in real estate. Work with an investment planner who can offer better insight into the right form of investment, whether it be an investment strategy, purchasing property, or even buying liens.

#4: Open Retirement Accounts

There are a handful of options available to you here, too. Look at any employer-sponsored plans, especially if they offer a matching feature. Then, consider strategies for individual retirement accounts that can add even more opportunity to you.

#5: Go with Bonds and Stocks

It is wise to invest money into stocks and bonds. The key to doing so is to get the process right. That means ensuring that you are working with a financial advisor who can guide your decisions and help you find the right investments for the amount of risk you want to take on. That’s going to change over time, too.

Need Help Finding the Right Investment Method for You?

These are just a few of many options for investing money wisely. Finding the right risk tolerance for your needs, and then working with a team like Sterling Financial, you can create the financial security you desire. Reach out to us today for a consultation.

What is Equity Investment?  

What is Equity Investment?  

Equity investment is a term you will likely hear across a variety of investment strategies. Its funds are invested in a company through the purchase of company shares usually in the form of stock investments. Most of the time, these are shares sold on the stock exchange. Is this the right financial tool for your needs?

The Benefits of Equity Investments

The goal of purchasing shares in a company is to watch the value risk. This can create capital gains as well as capital dividends in some forms.  When the shares increase in value, the investor can sell their shares and take advantage of the difference in value. This may create several key benefits, including:

  • You can diversify rather easily with this method. That makes it possible for you to reduce some of your risks in this investment method.
  • Most of the time, the minimum initial investment amount is low. That means those without a large amount of money to invest may still be able to take advantage of this strategy.
  • It offers more than one method for seeing value growth and, therefore, profit for investors. That includes through capital gains but also through dividends created by the value increasing over time.
  • It may also be possible to increase investments over time as companies work to raise additional funds. Though not all companies do this, many will, creating new opportunities.
  • It is possible to get out of this strategy rather easily. If you want to sell your shares, you are likely to be able to do so, depending on how well the company is doing.

It’s important to know there are risks associated with equity investment. It can work for those who are readily interested in investing in companies to help support their goals. Yet, not all companies will do well. The good news is you can choose shares based on the type of strategy and risk level that is right for your goals.  This gives investors a lot of room to find the right level of risk and growth.

Are You Ready to Invest?

Whether an equity investment is right for you or not, our team at Sterling Financial can provide you with guidance and support as you compare opportunities and strategies. Finding the right strategy for your goals is critical.