What Stock and Bond Alternatives Do I Have?

Many prudent investors may have at least some of their holdings in stocks, corporate bonds, or both. In fact, when most people think of “investing,” they think of Wall Street and the stock markets. Many fail to realize that there are a number of ways to invest in stocks besides owning individual shares.

Mutual Funds

A mutual fund is a collection of stocks, bonds, or other securities. Investors purchase shares of the mutual fund that is managed by a professional investment company. A typical mutual fund may hold dozens of different securities. That offers some measure of diversification — a sharp decline in an individual security wouldn’t be nearly as damaging to your portfolio as it would be if you only owned a few securities. Diversification is a method used to help manage investment risk; it does not guarantee against loss. 

Variable Universal Life Insurance

The insurance companies have developed some innovative products that enable you to invest in a wide range of securities  including stocks  through your life insurance policy. A variable universal life (VUL) insurance policy operates much the same as a “traditional” universal life policy. In exchange for premiums, the insurance company provides a death benefit. And, just like more traditional life insurance policies, the cash value within the policy accumulates tax deferred.  

Variable Annuities

The insurance companies have developed another interesting product: the variable annuity. With a variable annuity, you invest a sum with an insurance company, just as you would with a fixed annuity. But instead of investing your money in its general account, as with a fixed annuity, the insurance company invests it in a separate account. Like a variable universal life insurance policy, this separate account is made up of a number of different investment subaccounts. You specify how much of your annuity will be invested in the various subaccounts. Your return will be based on the performance of the investments you select.   Withdrawals of annuity earnings are taxed as ordinary income and may be subject to surrender charges plus a 10 percent federal income tax penalty if made prior to age 59½.  

If you are considering Retirement Planning, call for a free consultation today.