Annuities are a way that you can invest without going through the stock market or a common type of mutual fund. Basically, an annuity is similar to a bond, except that you are buying the annuity from an insurance company instead of from another type of company or a municipality. There are several different types of annuities, and while they are both low risk investments, you should definitely do some research into any annuities that you are thinking of buying.
The two main types of annuities include fixed and variable annuities. Once again, the type of annuity that you choose will depend entirely upon your financial situation and when you will need the money. For instance, if you are purchasing annuities to put in your retirement funds, then you will want to take into account how long it is likely to be before you actually retire. Long-term investments are a good idea if you do not intend to retire for a while – and you will be better able to deal with higher risk investments.
The fixed annuity will have a guarantee attached to it. Basically, when you buy the annuity, you are signing a contract with the insurance company. The insurance company will then fix the minimum rate of interest that you will earn during the period of your annuity (though this does mean that you might even earn more interest on your annuity during this time).
While you have an annuity, the insurance company will make payments to you according to an agreed upon schedule. Fixed annuities can be set up for the period of a few years, or even as long as your entire lifetime.
Variable annuities are similar to the fixed annuities, except that there are several different investment options when you purchase your annuity. What this means is that you can invest in mutual funds in addition to purchasing the annuity directly from your insurance company.
You can also choose an equity-indexed annuity, though they are slightly different than either the fixed or the variable annuities. Essentially your returns will be based on one of the stock market indexes instead of on a fixed or variable rate.