Submitted by Anonymous on
While this indexed annuity has a pretty short surrender charge period (5 years), the spread seems incredibly high.
Right now, the Pro V1 from Allianz has a 2.5 percent spread.
This spread is applied to 1 of 2 bond indexes--either the Barcalys Capital aggregate bond index or the PIMCO US Advantage index.
Interest rates around the world are at historic lows.
Continued appreciation is possible if the world comes to a deflationary end and bond prices continue to rise, but how likely is this?
The yield story is pretty much non-existent becuase of the super low interest rates.
On top of all this, apply the 2.5 percent "spread" to any return from either of these indexes and you are pretty much certain to make no money.
What the spread means is that 2.5 percent is subtraany return from an index return.
The 2.5 percent spread creates a pretty high hurdle.
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Anonymous replied on Permalink
Maybe this poster hasn't seen the Allianz piece that shows that there would have been a positive return, even with the 2.5% spread, in 18 of the past 20 years. The average rate of return during those 20 years would have been somewhere in the neighborhood of 4.5%. However, the product IS designed to be short-term, so each holding period on the company's current illustration shows a history over the past 10 years of yields between 1.68% and 3.34% - certainly better than CD's are performing, and not factoring in the tax-deferred compounding of the annuity. Another thing to consider is that the current illustrations don't reflect the addition of the PIMCO US Advantage Index, which I understand is up something like 6% in calendar year 2012. And, of course, there is the annuity guarantee of principal, just in case we are looking at a bond bubble in the next few years. I think the product is still worth serious consideration for the short-term piece of the portfolio.