Fixed-Index Annuity Return and Risk Analysis as Long-Term Investment

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This paper examines the risk and return of a fixed-index annuity (FIA) with an enhanced model framework that incorporates correlated market variables and changing participation rates. The performance of stock/bond portfolios is compared with that of two hypothetical FIAs (10-year monthly averaging and point-to-point) for a 10-year holding period. FIAs exhibited lower shortfall risk due to their structure. A stock/bond mix of 30/70 achieves higher risk-adjusted returns but slightly lower absolute return and higher tail risk. However, interest rate level and stock market volatility both affect the performance of FIAs.