Final answer:
Variable products, compared to traditional life and annuity contracts, offer more investment risk and the potential for higher returns by investing in financial markets. Their returns vary with market performance, unlike the fixed returns of traditional contracts, making them more appropriate for longer-term investment strategies.
Step-by-step explanation:
Compared to traditional life and annuity contracts, variable products have more investment risk and potential for a higher return, due to direct investment in financial markets such as stocks and bonds. The value of a variable annuity will fluctuate based on the performance of the underlying investments, which makes their returns variable as opposed to the fixed returns offered by traditional life annuities. This is akin to the difference in volatility and returns offered by different asset classes, such as stocks, bonds, and savings accounts. Stocks, while more volatile, can offer much higher returns over the long term, but they come with higher risk in the short term. For someone who is young and saving for retirement, investing in stocks or mutual funds may be more beneficial due to the higher average returns, with market volatility evening out over a longer investment horizon.