Consider An Annuity Instead Of A Bond2019-02-18T16:13:31+00:00

Annuities offer many benefits that make them more attractive than bonds

5 Reasons to consider an annuity instead of a bond.

Here is much more in-depth info with many more details and an excellent argument for the MYGA. We all know about tax deferral and the benefits on the surface, so let’s dig deeper and pull back the curtain.




1. Safety

Bond funds are especially prone to at least two risks that can hurt performance and reliability.

The first is rising interest rates, which will usually cause a decline in the values of bonds held within the mutual fund—and a drop in the fund’s net asset value. The second is a deterioration in the ability of the bond issuers to make expected interest payments and return the principal to the bondholders upon maturity.

These issues are damaging enough to investors who hold individual bonds. But those who own bond mutual funds while either (or both) events are occurring can experience significant losses, especially if net redemptions from the bond fund force the managers to liquidate positions at reduced prices.

However, with MYGA the risk to principal and interest is about as close to zero as depositors can get.

2. Transparency

According to Morningstar, mutual funds are only required to report their portfolio holdings twice per year, and the information may not make it into the public until up to two months after each reporting date.

Most funds report holdings more often than twice per year, but often the information represents just a “snapshot” of what the fund held on a given date in the past. Not only is it difficult for you (and your clients) to know what’s in most bond funds, but there may be a disconnect between the fund’s name and the perceived investments.

For instance, “government” bond funds might own mortgage-backed securities or zero-coupon Treasuries. They may also employ such strategies as leverage and derivatives to enhance returns. There is usually nothing inherently wrong with these investments, but they may add a layer of risk to the bond fund that will only be discovered and discussed when things go wrong.
MYGA are guaranteed with guaranteed interest, how simple is that?

3. Superior exit strategies

For better or worse, most bond mutual funds are perpetual, as there is no defined date or promised future value. But MYGA owners can take comfort in the knowledge that if they hold their annuity to maturity, they will get their interest and principal as expected. MYGA usually have built-in provisions for access a percentage of the account value during the term period.
Plus: In the event of death, the beneficiary receives the entire account value free of surrender charges, fees and expenses and the balance of the contract period is canceled.

Plus: with an annuity, almost all can be converted at any time to income. Income for any time period.

Plus: interest earned is never taxed until accessed, you cat say that about bonds or bond funds, they have built in tax liability that you cannot control.

4. Potentially Better Yields

A few minutes of shopping around online or in your firm’s inventory can find MYGAs that can meet or beat the prospective yields offered by bond mutual fund portfolios of comparable quality.

For instance, take the Vanguard Intermediate-Term Treasury ETF (VGIT). According to Vanguard’s website, as of 1/11/2019, the 30 day SEC yield of the fund was 2.58 percent. As of 11/30/2018, the average effective maturity of the fund’s holdings was 5.6 years and the average duration was 5.2 years. At the same time, many MYGA in the five-year maturity range were paying around 3.20 percent.

True, unlike a MYGA, the interest on a bond mutual fund comprised entirely of Municipal Bonds could be exempt from taxation. And it likely doesn’t make up for the potential risk and volatility inherent in investing in a bond mutual fund, compared to the certainty of a MYGA.

5. Lower costs

According to the latest information available from the Investment Company Institute, the average asset-weighted bond mutual fund expense ratio is 0.48 percent, and its 0.18 percent for exchange-traded bond funds. Those figures appear to be reasonable, but in the current low-interest rate environment those expenses eat up a substantial portion of the yield generated by the fund’s portfolio, reducing the overall return.

MYGAs have no ongoing expense ratio; therefore, all of the interest paid by the annuity goes directly to the owner.
Unlike many broker-sold bond funds, MYGAs have no similar sales or redemption charge. However, surrender charges may apply for early access.

In addition, if a client is canceling a MYGA before maturity or buying one in the secondary market, there may be a spread between the “bid” and “ask” prices offered by the market maker. MYGAs offered directly by insurance company representatives have no sales charges or expenses.

No brainer, why would anyone even consider a bond or a bond mutual fund? The answer is simple, they are poorly educated. It is time to fix that!

Thanks to for the comparison.