Annuities Great for Salesmen, Not Usually for Investors

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Hey Taylor - I am about 46 years old and I make about $90,000 a year. I was told that an annuity would be a great investment for me. I know that it deals with insurance products, but is this something that I should do? - John

Hey John -  Since I don't know your entire financial situation, I can't say for sure if this is something you should do or not, but I can tell you why I am not a fan of annuities for the vast majority of people.

According to the American Association of Individual Investors, the average annual fee for an annuity is 3 percent, and that doesn't include any management fees that your advisor may charge. In addition to those high fees, if you need your money back before the lock-up period ends in seven to 10 years, you will face extremely high surrender charges. I don't know about you, but I don't like the thought of giving my money to someone and them charging me a huge fee when I need it back.

Annuities pay great commissions (over 10 percent in some cases) to the salesperson, which is why they are pushed on just about every single person who walks through their door. I believe that for the majority of investors, a well-balanced portfolio of stocks and bonds tailored to your specific goals is the best, and most cost-effective, investment approach.

Hey Taylor - I'm 16 and I just got my first real job. I'm only making $7.50 per hour and I want to start saving for the future, but I'm not sure where to start. My parents pay for my car insurance and phone, so I don't have any bills. What should I do? - Kelsie

Hey Kelsie - Congratulations on getting your first job and for having the forethought to save some of that money for the future. For every paycheck that you make, put 40 percent into a savings account, have fun with 50 percent, and then give the last 10 percent away to charity.

Not only will this allow you to enjoy some of the money you are making now, but it will also help you get into the routine of saving a good portion of your income. The last 10 percent is something that you won't hear from a lot of financial advisors, but it's important as it teaches you that no matter how successful you get, there are others in our community who are less fortunate and need help.

If you keep using this simple budget for the next two years, you'll be surprised at how big of a nest egg you will have to open up your first investment account when you turn 18.

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