Ferrari or Chevrolet: Stocks or Annuities?
Both are great cars, and both cars would be a proud possession, right? Here is the deal I could offer you.
What if I told you I was going to give you $100,000 if you can drive from here to the next town in 30 minutes and $80,000 if you can make it in 40 minutes? The only condition is that you have to drive one of the two cars that I choose.
One car is a Chevrolet sedan, and the other is a Ferrari. The Chevrolet is dependable and powerful enough to get you there in just under 35 minutes. The Ferrari will get you to the same destination in about 20 minutes.
Here is the catch. The Ferrari has a bomb in it, and I have no idea when it is going to go off. You can drive as fast as you wish, but if you don’t make it, what would happen to you.
Investing is similar; many of us have had the opportunity to invest in the “sure thing,” making the high returns. But what happens if the deal doesn’t work out? What happens when I don’t even get back my original investment? What happens if you run out of time?
Getting somewhere fast can be appealing, but getting there eventually might be a smarter move. Investing is similar, making a little safe, guaranteed return over some time could be a better choice than trying for the big gain, especially when the quick way could also be the losing way.
There is nothing wrong with risk as long as the risk is understood and the expected gains are within reason. Many people eventually evolve to safety and security as they age and as they get closer to retirement time. If you are in that category, consider an annuity as a solid choice for adding that layer of safety and security to your planning. Once that is in place, you can take an occasional fling with the Ferrari.
Stocks are like Ferraris. Annuities are like Chevrolets.