With the stock market floundering, the real estate market drowning, and the bond market drudging along, investors have cultivated an appetite for guaranteed returns. Enter annuities. An annuity is basically a contract between an insurance company and an investor to pay a certain sum of money at a certain time (or over a certain time period) subject to certain conditions. Of course, there are practically limitless terms and conditions annuity contracts can take on, but there are two basic forms of annuity contracts: Immediate (or Income) Annuities -come annuities are quite simple. They function much like a corporate pension, guaranteeing a certain monthly income for life (or for a certain period of time, if you so choose), only you as the investor are responsible for paying the upfront insurance premium rather than a corporate employer. The insurance company is betting you’ll die before you earn back your initial premium. You, on the other hand, are guaranteed an income for life. If you live to be 120, the insurance company is bound by law to continue writing you a check every month. On average, the insurance company comes out ahead, but the peace-of-mind and sense of security you get from a guaranteed income cannot be overstated. Variable Annuities - Variable annuities blend the insurance component of annuities and the investment component of investing in the market. Typically, variable annuity contracts act as a wrapper for diversified portfolios of stocks, bonds, or perhaps some other asset class (such as real estate). The proceeds from the annuity’s investment portfolio are divided between the investor and insurance company in a pre-determined manner.In general, income annuities are often a good deal for older investors with fixed expenses who place a premium on security of income. Variable annuities, on the other hand, are usually a poor deal because they are complicated, difficult to understand, and carry large (often hidden) fees. Visit amateurassetallocator.com for hundreds of articles on investing and personal finance topics, such as the pros and cons of variable annuities and where to get your free credit report.

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