Pair Safety with Growth Through Hybrids

Physician's Money Digest, January31 2005, Volume 12, Issue 2

Whether interest rates willrise is no longer the question;it's now a matter ofhow much and howoften. That's potentially bad news forphysician-investors with equity andfixed-income portfolios. While the impactof rising interest rates is unlikely tobe as Draconian as some analysts believe,there is a propensity for investorsto overreact. Physicians at or near retirementshould be especially fearful, sincethey are more vulnerable to choosinginappropriate options.

Fusion Approach

A good option right now may beequity indexed annuities (EIAs), ahybrid strategy that promises the safetyof traditional annuities, tax-deferredlong-term equity growth potential,guaranteed minimum interest, and norisk of principal loss.

Introduced a decade ago, but largelyoverlooked during the go-go equity years,EIAs are now attracting considerableattention. Sales of indexed annuitiessoared to $5.3 billion during the secondquarter of 2004, up 42% from the sameperiod in 2003. In a recent mailing aboutEIAs to investors, I received an unprecedented35% response. People are obviouslyworried about continued low ratesof return on their fixed-income portfoliosand are looking for a better long-termsolution. The greatest interest came frominvestors looking to convert bond mutualfunds, CDs, and fixed-income annuities.

Strategy Warning

As with any investment, there arecaveats. Watch out for differences in participationrates, minimum-interest guarantees,issuer strength, spreads, earningcaps, surrender charges, distributionrestrictions, and the method of index calculation.All of these factors can have asignificant impact on investment returns.

Bottom line:

For example, one of the largest EIAissuers is marketing one with a temptingup-front bonus payment, but upon furtherinvestigation, the product has some penalizingwithdrawal provisions. This particularcontract requires investors to annuitizetheir funds at the end of the contract. Thatmeans they cannot receive their money ina lump sum; the funds can only be withdrawnin portions, over a set period oftime, and typically at a less competitivefixed rate. EIAs are ideal forsafe money, but physician-investorsshould make certain that they understandall the features before investing.

is an investment

advisor with David T. Phillips &

Co in Phoenix, Ariz. The firm

offers a no-cost booklet containing

a comprehensive, unbiased

assessment of EIAs including ten

primary features for physicians to evaluate when

choosing one. The booklet is available by phone

at 800-223-9610, or

Todd Phillips