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Tortoise vs. Hare: 3 Reasons Why Fixed Income Annuities Win the Investment Race

Tortoise and Hare Race

People love get-rich-quick schemes, from the Tulip craze of 1637 and Bernie Madoff, to lottery fever and Bitcoin. There’s only one problem: substantial research shows that slow and steady wins the race.

For example, in a recent paper by Barclays and co-authored by Dr. Robert Shiller entitled “Investment Characteristics of FIAs,” the authors uncovered three remarkable trends regarding long-term investing.

1. FIAs offer superior risk-adjusted performance compared to an S&P index fund.

The report revealed that FIAs “offered returns comparable or superior to a generic S&P index fund in approximately three quarters of all the 10-year periods considered and would have allowed investors to avoid the negative returns earned on an S&P index fund in the periods beginning 1999-2001.”

2. FIAs outperform the Bloomberg Barclays US Aggregate Bond Index.

The authors noted: “Simulated returns were superior to the returns on the Bloomberg Barclays US Aggregate Bond Index, an industry standard bond index, in 99% of all periods.”

3. FIAs protect clients against behavioral shortsightedness.

The paper also addressed some of the non-financial risks investors (and their advisors) face today that could be overcome using a fixed index annuity. They specifically mention two “mental traps” from the field of behavioral finance.

  • Availability bias is “the tendency for people to rely on the most recent information when making a decision.” For example, using the 10-year bull market as an excuse to avoid derisking a portfolio.
  • Myopic loss aversion. Investors tend to become more risk averse the more frequently they check their accounts. The authors believe that, in addition to mitigating financial risk in a portfolio, an FIA could be used to mitigate the “mental traps” many investors fall into.

So what did the experts conclude? Two things that should make every investor and financial planner sit up and take notice.

  1. “An FIA structure, if well designed, offers a potentially beneficial alternative investment for a retirement portfolio.”
  2. “Over-allocating to bonds late in life is not an ideal investment solution; yields are low and bonds may prove a far worse investment in the future than they have in the past.”

Please contact one of our dedicated annuity representatives at
(800) 699-0299 to learn more.

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