NEW YORK (TheStreet) -- A previous article on TheStreet, "Look to Dividend Aristocrats, not Annuities, to Fund Retirement," detailed why stocks with a history of increasing dividends such as HCP (HCP), Consolidated Edison (ED), and AT&T (T) are superior to annuities, which are contracts with insurance companies to pay a set amount of income over a set period. That article focused on the higher yields of HCP, AT&T, and Consolidated Edison and the lower security of annuities which are not backed the federal government. Here are three more reasons to buy dividend aristocrats, those stocks that have increased the dividend annually for at last 25 years, rather than annuities for retirement and other needs.
With an annuity, the buyer is paying the insurance company to invest for them. It is far easier and cheaper for an individual to buy Coca-Cola, Exxon Mobil and Wal-Mart (WMT) than to purchase an annuity and have to rely on the investment acumen of the insurance company to be finance it. Such stock investments have built in a professional recommendation, as they are owned by legendary investors like Warren Buffett.
Insurers are becoming more vulnerable to financial runs due to changes in investment holdings.
A recent article in Bloomberg Businessweek reported that the Federal Reserve Bank of Chicago found insurance companies are relying more on selling products that can be cashed in immediately such as annuities and guaranteed investment contracts. The amount of funding for an insurer that is subject to immediate withdraws has increased by 8% since 2007, as a result. That means insurance companies are becoming vulnerable to runs.