How do variable annuities compare to mutual funds?
The separate account of a variable annuity is made up of many sub-accounts. These sub-accounts are quite similar to mutual funds (and sometimes clones). Given the similarity and the fact that variable annuities and mutual funds are used for similar purposes, comparisons are inevitably made. Many comparisons are often flawed, however, because they tend to focus on expenses instead of performance. Comparisons should be based on performance. Obviously, expenses affect performance, but they are only one factor. All factors must be considered and that is what performance does. Mutual Funds Mutual funds can be long-term or short-term savings vehicles, and they may or may not be used for retirement. For purposes of comparison, we will only evaluate the mutual funds as they are used for long-term retirement savings. There are basically three ways an investor gets a return on a non-qualified mutual fund investment: dividends, capital gains generated by the fund and capital gains generated by se
