When we moved into our St. Louis home several years ago there were 10 trees growing in the yard. Today, there are three. My wife will tell you the seven missing trees were removed because they were ill or ill placed. My explanation is that my wife grew up on the open prairies of Iowa and views stands of trees as alien life forms.
When I took her to see the cabin in northern Minnesota that I visited as a boy, I felt at peace seeing the close-set pines and contrasting birch trees that provided a green and white curtain of privacy and mystery. My wife, on the other hand, felt claustrophobic. She prefers wide-open vistas for the same reason I like dark forests: because this is what we were first exposed to, what we were raised with. For the same reason, financial reporters generally do not favor fixed annuities.
Forbes, Money and the Wall Street Journal are all housed a few subway stops from the New York Stock Exchange. If the story they are reporting has to do with stocks or bonds, financial reporters are comfortable; they are familiar with this part of the financial world, the securities “forest.” But the annuity “plains” are unfamiliar and make financial reporters nervous, so they try to take elements of their home and apply them to this unfamiliar landscape. Therein lies the problem.
One cannot lose money in a fixed annuity unless one chooses to (by surrendering the annuity during the penalty period). Fixed annuities provide a minimum guarantee that ensures you will not lose ground. Fixed annuities do not have fees or expenses but instead pay a predetermined, stated interest rate or participation rate. Securities, with which financial reporters are most familiar, do not offer a guarantee that when the period ends you will not have lost ground. So reporters make invalid comparisons between securities and annuities, sometimes lashing out at fixed annuities because they are unfamiliar.It is very difficult to change the inclination that comes from a lifetime’s worth of experience. It is unlikely I will ever move to a farm, for example. But over the years, I have come to respect and appreciate the majestic view of sprawling fields that end at a distant horizon. And, if they keep an open mind, financial reporters may one day come to respect and appreciate the wide-open spaces of fixed annuities.
Jack Marrion is president of Advantage Compendium Ltd. in St. Louis, Mo. Responses
and questions can be sent to email@example.com.