C. A. Johnson Ins. Agency, Inc.: Financial Terms

Financial Terms

Annuity

Form of contract sold by life insurance companies that guarantees a fixed or variable(not recommended) payment to the annuitant at some future time, usually retirement. In a FIXED ANNUITY the amount will ultimately be paid out in regular installments varying only with the payout method elected. In a VARIABLE ANNUITY, the payout is based on a guaranteed number of units; unit values and payments depend on the value of the underlying investments. All capital in the annuity grows TAX-DEFERRED. Key considerations when buying an annuity are the financial soundness of the insurance company (see Best’s Rating), the returns it has paid in the past, and the level of fees (no fees charged unless you make money).

Mutual Funds

Fund operated by an INVESTMENT COMPANY that raises money from shareholders and invests it in stocks, bonds, options, futures, currencies, or money market securities. These funds offer investors the advantages of diversification and professional management. A management fee is charged for these services, typically between 0.5% and 2% of assets per year. Funds also levy other fees such as 12B-1 FEES, EXCHANGE FEES and other administrative charges. Funds that are sold through brokers are called LOAD FUNDS, and those sold to investors directly from the fund companies are called NO-LOAD FUNDS. Mutual fund shares are redeemable on demand at NET ASSET VALUE by shareholders. All shareholders share equally in the gains and losses generated by the fund.

Mutual funds come in a many varieties. Some invest aggressively for capital appreciation, while others are conservative and are designed to generate income for shareholders. Investors need to address their tolerance for risk before they decide which fund would be appropriate for them. In addition, the timing of buying or selling depends on the outlook for the economy, the state of the stock and bond markets, interest rates, and other factors.

Mutual funds or variable annuities are not recommended at this time due to the volitility involved with such products. Only do so if you understand the risk involved and have the options to change to a fixed account within the financial vehicle. Inflationary times will decrease the actual net value of the account.