Final answer:
Equity Indexed Annuities are usually linked to a stock market index, such as the S&P 500, rather than being invested in corporate bonds, money market accounts, or municipal bonds. These annuities have a safety feature of a guaranteed minimum return with the potential for an additional return based on the equity index's performance.
Step-by-step explanation:
Equity Indexed Annuities are typically linked to a market index, such as the S&P 500, which is a representation of the stock market's performance. They are not directly invested in products such as corporate bonds, money market accounts, or municipal bonds. Instead, these annuities offer a combination of fixed interest rates and the potential for additional interest based on the performance of the underlying index they track. Equity Indexed Annuities provide a guaranteed minimum return, which is a safety feature for investors who are cautious about market volatility.
Indexed bonds mentioned in the context do provide a rate of return higher than inflation by being tied to an index, which may lead one to have reduced concern over inflation when considering long-term investments. This indexing mechanism is somewhat similar to the concept behind Equity Indexed Annuities, where returns are tied to a market index's performance.
In investment terms, typically stocks offer higher average returns compared to bonds in the long run, as seen with the performance of indexes like the S&P 500. Bonds, however, still offer higher returns compared to traditional savings accounts, albeit with varying degrees of risk.