Investments
As independent advisors, the advisors at PathKeeper Financial can choose investment products from a wide range of sponsor companies. This means we specifically tailor our investment recommendations to an individual or family's needs and goals. Strategies can include mutual funds, exchange traded funds (ETFs), individual stocks and annuities.
What is a mutual fund?
A mutual fund is an investment vehicle that pools money from many investors and invests in securities such as stocks, bonds, money market instruments, etc. With a mutual fund, investors receive the benefit of professional, experience managers who allocate funds to generate capitals gains or income, depending on the objective listed in the prospectus. Investors can purchase mutual funds that specifically invest in a certain segment of the markets such as large cap US stocks, or they can purchase mutual funds that offer diversification across several segments of the markets.
What is an ETF?
An exchange-traded fund (ETF) is a marketable security that is similar to a mutual fund. The main difference is that ETFs trade like common stock on an exchange throughout trading hours. The largest ETFs typically have higher average daily volume and lower fees than mutual fund shares, which makes them an attractive alternative for individual investors. While most ETFs track stock indexes, there are also ETFs that invest in commodity markets, currencies, bonds, and other asset classes.
What is a stock?
Stocks, also known as shares or equity, represent ownership in a company by an investor. When an investor buys stock in a company, they are claiming part of the company's assets and earnings. There are two main types of stock: common stock and preferred stock. Common stock owners usually have a right to vote in shareholders' meetings and receive dividends. Preferred stock owners generally do not have voting rights; they can receive dividends and have a higher claim than common stockholders on assets and earnings in the event of bankruptcy.
What is an annuity?
An annuity is a contract between an investor and an insurance company. The investor may make a lump sum payment or a series of payments and in return will receive regular disbursements beginning either immediately or at some point in the future. The goal of annuities is to provide a steady stream of income during retirement. Money invested in an annuity grow on a tax-deferred basis, and like 401(k) contributions, there is a penalty for withdrawals prior to age 59 ½. There are three different ways for money to grow once contributed to an annuity – earn a stated rate of interest, earn interest based on a market index, or invest the funds in variable subaccounts.
Fixed Annuities
In a fixed annuity, a client typically pays an insurance company a lump sum amount of money in exchange for a guaranteed fixed interest rate while also guaranteeing the principal investment.
Indexed Annuities
Index annuities, or fixed index annuities, are similar to a fixed annuity. An individual pays an amount of money (premium) to an insurance company. However, instead of a fixed rate of interest, the interest rate the investor earns is linked to an index such as the S&P 500® Index. In years when the chosen index has gone up in value, the interest paid into the contract based will equal a portion of the gain in the index. The interest is less than the growth in the index, and in exchange for the cap on the investment growth, the investor receives some protection against down markets. In years when the value of the index is down, the investor does not lose any value in the contract.
Variable Annuities
Again, with a variable annuity an individual pays an amount of money (premium) to an insurance company. Clients can choose from a wide variety of subaccounts available in the contract to maximize the potential of long-term growth of their investment. The subaccounts can invest in stocks, bonds, and other asset classes. The contract value of a variable annuity will fluctuate based on the ups and downs of the market(s).
All annuities can provide the owner, or another individual, with a guaranteed income payout for a set number of years or for life through a process known as annuitization. Annuities can also include additional riders that allow for a lifetime of income through the rider which may provide higher guaranteed income than standard annuitization. There are other riders available that can guarantee a death benefit or provide other benefits to the contract owner. These riders come at an additional expense to the client. Diligent review of the pros and cons of annuity contracts is necessary as they also have surrender periods attached which can trigger penalty charges if money is taken out too early.
Stock and mutual fund investing involves risk, including possible loss of principal. An investment in ETFs involves additional risks such as not diversified, price volatility, competitive industry pressure, international political and economic developments, possible trading halts, and index tracking errors.
Fixed and Variable annuities are suitable for long-term investing, such as retirement investing. Gains from tax-deferred investments are taxable as ordinary income upon withdrawal. Guarantees are based on the claims paying ability of the issuing company. Withdrawals made prior to age 59 ½ are subject to a 10% IRS penalty tax and surrender charges may apply. Variable annuities are subject to market risk and may lose value.