Looking to optimize your retirement savings? Focusing on assets that drive portfolio growth with minimized risk is key. Find out which vehicles offer the best growth potential with CKS Summit Group.

To be reading this article means you’re taking an interest in saving for retirement. We are gladly here to help you make the best decision to put “future you” in the best position financially.

A common question when it comes to investing and growing portfolios, what is the better investment between annuities and equities? The unfortunate answer is it depends on your situation. 

Both vehicles offer growth potential. At the same time, they have their own risk profiles, as well as costs and tax considerations. For example, growing your portfolios with most annuities can be limited. However, similar to stocks, variable annuities can prove to show growth based on how your investment performs in the stock market. Something more safe and secure would be fixed or fixed-equity annuities that will provide security in their predictability. Next we’ll dive deeper into the details of differences between annuities and equities.

For anyone confused on exactly what equities are, they are the same as stocks. A purchased share of a company means you are also considered a partial owner. For example, some companies may offer you “equity” in the company or stock ownership as part of an employee contract. Investing with equities can be achieved in several ways and different accounts. Going the equities route will allow you to buy shares that represent your portfolio and what you have set for yourself as criteria for investment.

The biggest difference from annuities is that you don’t receive a fixed interest rate or a full guaranteed income. Due to this difference equities are, in general, the riskier route.

For younger or inexperienced investors, equities or stock market investments will be the best option in terms of growing your investment portfolio. However, investors should keep in mind that there will likely be a time period where equity investments will decline significantly due to market decreases. It’s possible to recover from these volatile market changes, however it may be the case you have a loss on account statements. To be able to fully reap the rewards of this long-term investment, you have to be able to understand and work through the negative market turns.

As another fast refresh of annuities, they are contracts in which you sign with life insurance or annuity companies. There are several types of annuities, however they do share several similarities. The overall goal of annuities is to ensure you have some sort of guaranteed income after you reach retirement. An annuity is either fixed in terms of earning and accumulating interest on top of the principal value. It can also be variable, with an account value separated into sub-accounts invested in stocks and bonds. 

As of course a contrast to equities, annuities will give you much more security when it comes to having guaranteed income from your investment. Without a question, annuity’s main advantage is that it will provide lifetime payments. Outliving your savings is a worry for half of Americans, an annuity is a safe and effective solution. There are risks and negatives to annuities as well, most notably the illiquidity of the investment. Another negative of investing in annuities is they can be expensive. According to Due, “in addition to surrender charges and early withdrawal fees, annuities have a number of fees attached to them, including administrative fees, commissions, investment expense ratios, and mortality & expense risk charges.”

It really comes down to the level of risk you’re willing to take on personally. Regardless of your age, this is fully a decision that depends on your individual goals for your investment portfolio.

For example, annuities are ideal for anyone with the goal of maximizing on their Social Security. If you would like protection over any assets in order to pass on a legacy, annuities are a perfect option for this as well. If diversification and driving your portfolio growth is top of the list for importance, then it could be best to go with equities (or go with both).

Any other questions or concerns on the best way to set up future you for financial success? Reach out to CKS team today, we’re happy to consult you to achieve your goals and get your retirement and investment strategy off to the best start possible.