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Choosing Subaccounts

Once you’ve chosen a variable annuity, it’s time to pick subaccounts (also known as underlying investment options).

So, how do subaccounts work within the variable annuity you bought? If you imagine that the financial variable annuity you’ve chosen is a vehicle, then the subaccounts you select are the engine. The subaccounts drive investment performance. Your subaccount choices, like a car, should fit your lifestyle. For example, if you buy a sedan, you don’t expect sports car performance.

Getting started

Before you choose subaccounts (or make investment decisions in general), you need to know your goals, decide how much risk you’re willing to take and anticipate how much time your money has to grow.

Know your goals

What do you want your money to do for you? Are you dreaming about a retirement filled with exotic travel, or paying for your child’s expensive education? Clear goals can help you choose funds.

Determine your risk tolerance

What kind of investor are you – conservative, moderate or aggressive? Your risk tolerance reflects your willingness to accept some volatility in the rate of return of your investments in exchange for a chance for greater potential growth.

As a general rule, if you expect a higher rate of return, you should be willing to accept a higher degree of risk. If you pick less risky investments, the tradeoff may be less growth potential.

Figure out your time horizon

How much time do you have between when you invest and when you need your money?

The more time you have, the better – but it depends what you're saving for. If you're saving for your child's college education, your time horizon will be the amount of time between now and the day the first tuition payment is due. But if you're saving for retirement, your time horizon will probably be longer.

Evaluate subaccounts

The next step is to do your research on subaccounts. A good place to get information is through Morningstar, an independent fund rating service.  You can find Morningstar information online or at your local library.

Some subaccounts are specifically designed to meet a certain time horizon. Others are designed for a particular type of investor.

Always check the objective of the subaccount and read the subaccount's prospectus to make sure it’s consistent with your goals. And if you need help, talk to your investment professional. Your financial advisor has the experience and expertise to help you choose investments. Keep in mind that all investing involves market risk, including possible loss of principal, and there is no guarantee that investment objectives of any subaccount will be achieved.

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