MEG GREEN
Q: In choosing between investing in an annuity versus a mutual fund, isn't it true that an annuity allows my financial advisor to pick and choose the sectors in which to allocate various percentages of my investment and change those sectors when prudent? Whereas a mutual fund is entirely managed as a ''packaged investment'' based upon the desired risk factor?
If that's true, and I want a hands-on approach with a trusted advisor, and I am OK with the time frame of the limited access to my investment, as well as the higher fees, wouldn't you agree that an annuity is the way to go?
Lorin Frank
Coconut Grove
A: I would agree with you if your premise was correct, but alas, you've been misguided. Inside variable annuities you'll find the very same type mutual funds that you can find outside an annuity. If you really want to ''play'' sector funds, you can easily do it through companies like Fidelity who have as many sector options in mutual funds as you can imagine, or ETF's, Exchange Traded Funds.Taxes can be an issue if you always have gains, but that's rarely the case with sector rotations. Outside an annuity you can take losses against gains and be a little more tax neutral than having to deal with all ordinary income, which is how earnings from annuities are taxed upon withdrawal.
You can do whatever feels right; neither way is wrong, but just do it with all the facts! On another note, if anyone knew how to manage sectors impeccably, I imagine they wouldn't have time to be a trusted financial advisor. It's a whole different ballgame, in most instances.
Meg Green is a certified financial planner. Mail questions to her c/o Sunday Business, The Miami Herald, 1 Herald Plaza, Miami, FL 33132 or e-mail askmeg@MiamiHerald.com. Include full name and city of residence.
