Variable annuities stink!

Clark's strategies for investing infuriate some people. They take issue particularly with the way he steers folks away from variable annuities and toward index funds or tax-managed accounts. But he's not alone in slamming variable annuities. The Wall Street Journal recently presented its reasons why they stink. But first, Clark wants to give some examples of index funds and tax-managed accounts so people know what he's talking about. Index funds can be things like the 500 Index or the Total Stock Market Index. With the former, you own one investment that owns small slices of the top 500 companies in America. With the latter, you own pieces of 3,000 companies in the United States. Tax-managed accounts, meanwhile, are for big spenders who have $10,000 or more sitting around. They offer low management costs and the management company is duty bound to balance your losses and gains so you don't have a huge tax bill at the end of the year. Both index funds and tax-managed accounts should be bought from no-commission, low-cost mutual fund companies like Fidelity Investments, Vanguard or T. Rowe Price.

There really are some stark differences when you compare and contrast Clark's choices of index funds/tax-managed accounts versus variable annuities. The latter has gigantic expenses each year, as much as 15 times greater than Clark's choices. The maximum tax you can pay on index funds/tax-managed accounts is only 15 percent, while it's 35 percent on a variable annuity. Variable annuities are also designed to be spent only when you're 59 1/2 or older. If you want your money earlier, you'll pay a 10 percent penalty. Clark's choices have no such age restrictions or penalties. Finally, you must pay a massive fee called a yearly surrender charge if you want out of a variable annuity before you've owned it for 10 years. Tax-managed accounts, meanwhile, may assess a one-percent fee if you leave with the first five years. The verdict is clear: Variable annuities stink!