Final answer:
The value of a variable annuity correlates with the value of the securities in the separate account of the annuity. While market indices like the S&P 500 and DJIA provide market performance indications, the specific investments in the annuity drive its performance and risk.
Step-by-step explanation:
Fluctuations in the value of a variable annuity will correspond with the fluctuations in the value of the securities held in the separate account of the annuity. A variable annuity is an insurance product that ties the growth of the investment to the performance of a market index or a collection of investments. Since a variable annuity invests in different securities, including stocks, its value can be affected by the ups and downs of the stock market. However, it isn't directly correlated with a market index like the Dow Jones Industrial Average unless the annuity's underlying investments specifically aim to track that index.
The value of these securities can indeed fluctuate widely, similar to individual stocks or mutual funds. Broad stock market measures, such as the Standard & Poor's 500 or the Dow Jones Industrial Average, tend to move together because they reflect the market as a whole, but the value of a variable annuity will be based on the specific investments within its separate account.
It's essential to note that while market indices can provide a barometer for market performance, the specific investments chosen within an annuity's separate account, their diversification, and the portfolio's management strategy will ultimately determine its performance. This also means that an investment in a variable annuity comes with risks, particularly if the investment is concentrated in stocks, as evidenced by the 38% decline in U.S. stock funds in 2008.