If you are willing to invest a substantial portion of your portfolio in stocks or stock funds and stick with them, you probably will enjoy superior long-term results. Some people want downside protection, though, which can’t be provided by mutual funds or individual securities.
You can, however, get guarantees in a variable annuity. These annuities often provide a return-of-principal guaranteed death benefit to an investor’s beneficiary.
Suppose, for example, Joan Smith invests $50,000 in a variable annuity, which she allocates to several stock funds. The stock market plunges and Joan’s account falls to $30,000 in three years.
At this point, Joan dies. Her son John, named as beneficiary, would collect the $50,000 Jane had invested, under the guaranteed death benefit. What’s more, some variable annuities increase the amount of the guaranteed death benefit, if the account value moves up. The higher guaranteed amount stays in effect, even if the account value drops by the date of death.
