While index annuities may guarantee a return of principal with a small rate of return, you are typically required to hold the investment for seven or more years. If you pull your money out early, you'll be slapped with a hefty surrender charge, often as high as 7 percent. If the stock markets perform well and you hold the annuity until maturity, you'll only receive a portion of those returns. Each annuity product is different, but I've seen returns to be less than 50 percent of the stock market return. Index annuities may be appropriate for some investors, but they are not for everyone, and they are not as great as they appear.
Stock market returns with no risk sounds great, but there is no such thing as a free lunch.
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