The Fixed Indexed Annuity Study from Wharton Professor David Babbel

There is in fact a study from Professor David Babbel that compares the performance of fixed indexed annuities to portfolios of stocks and bonds and it is fascinating.


The study compares the performance of two fixed indexed annuities (FIA) to the following alternative investments:

  • Vanguard’s S&P 500 Total Return Fund
  • The S&P index used in calculating the FIA’s crediting rates.
  • A benchmark portfolio consisting of: a) 50% Vanguard S&P Total Return Fund, and: b) 50% Vanguard Total Bond Market Fund
  • A money market index.

While certainly not representative of all asset classes, the alternatives do provide a proxy for broad market performance.


The two fixed indexed annuities have terms of 9 years and 14 years.  Both FIAs have similar issue dates on or around January 1995.


Again, the results are eye opening with the fixed indexed annuities outperforming—in terms of annualized returns and terminal wealth—the alternative investments over every time period.  In some instances the outperformance is dramatic.  The impact of starting dates for the investment portfolios and the subsequent sequence of returns risk is especially noticeable.


I will be communicating some of the study features over the next several days.  There is an accompanying lecture that I first need to digest.


It is important to note that the study is strictly academic and is not intended to be used in any form as a marketing tool.  The study is a result of the collaborative efforts of Professor David Babbel, Dr. Miguel Herce, and Dr. Kabir Dutta.  The results were initially communicated in November, 2008 at an Ibbotson Associates / IFID Centre conference.      

Key Phrases Autotag: 


Thanks for talking about this study, Tom. Questions of "which annuities" seem moot to me -- unless someone owns a time machine.

I look forward to reading your commentary on the study as you progress. I look less forward to how various companies will try and spin this as a marketing tool. But so be it. :)

Would be good to have a substantive study to point to so that the spin and fluff is limited.

That said, on a comparative basis it is remarkable what the asset management / accumulation industry gets away with from a marketing standpoint compared to insurers / decumulation sector.

I am looking forward to seeing some of the results. Wondering why this study is not more widely published and discussed by the industry if it provides such a strong supporting case for comparative performance of equity indexed annuities?

yes, how come there is not more coverage of this? seems like information that could be very valuable beyond academia.

Not sure why there is not more coverage. My impression is that Prof. Babbel is not in the business of gaining marketing or PR traction for the industry.

That said, it just seems to me that the media pick-up on something like this would be completely different if the product category fell within conventional asset management / accumulation. Imagine the PR frenzy if global macro hedge funds had a proven, consistent 15 year run outperforming some relevant or not so relevant benchmark...

The reality is that media coverage of index annuities is just the opposite--could not possibly be worse. Prof Babbel points this out in his slide deck with some great media/article clips.