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Once you’ve chosen a variable annuity, it’s time to choose subaccounts. Also known as underlying investment options, variable annuity subaccounts drive investment performance. Some subaccounts are specifically designed to meet a certain time horizon. Others are designed for a particular type of investor.
Before you get started, you need to:
- Know your goals
- Decide how much risk you’re willing to take
- Determine how much time your money has to grow
Have specific goals in mind
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 education? Clear goals can help you choose funds.
Determine your risk tolerance
Are you a conservative, moderate or aggressive investor? 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. If you're saving for retirement, your time horizon will probably be longer.
Evaluate variable annuity subaccounts
Do your research. 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.
Always check the objective of the variable annuity subaccount and read the subaccount's prospectus to make sure it’s consistent with your goals. 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.
If you need help choosing variable annuity subaccounts, talk to your investment professional.