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As noted above, when you buy a variable annuity, you will need to allocate your money among a number of investment choices. These investment portfolios are structured like mutual funds, either designed specifically for the annuity company or are similar versions of existing funds designated for retirement accounts. Although the names of the investment portfolios may be similar to those of mutual funds available generally to the public, they are not the same funds but are more like "clones" of these funds. It is important to note that, unlike mutual funds, variable annuities involve additional fees, such as mortality fees and administrative fees.

As the investor, you must choose among the ones that the issuing company offers, much as you would with a 401(k) or 403(b) retirement plan. Typically, there will be a number of offerings, possibly including stock portfolios, a money market account, a government bond portfolio, a corporate bond portfolio, and a guaranteed account (fixed account), which is similar to a fixed annuity investment. When deciding which portfolios (sub-accounts) to choose within a variable annuity, always remember that financial professionals recommend that you diversify among different types of investment classes using a technique known as asset allocation. You will need to do some research in this area on your own, or work with your financial professional in order to reach the best decision that works for your goals. Your financial institution should have an investment consultant who can help explain your choices, and who may be able to guide you toward an allocation that meets your individual need.