Annuity Term category: General Investing, Retirement In 10 words or less: An investment that pays a fixed income stream to the investor.
Definition: An annuity is a type of investment that guarantees payments of specific amounts at specific times. You can either receive periodic interest or a lump sum payment. They come in two forms: fixed and variable. Fixed annuities are like CD's that pay a set rate of return. Variable annuities allow you to invest in stocks and bonds and the rate of return depends on how your investments do.
StockJargon Advice: Annuities are great for people who would like to receive a steady income stream. For example, if you had $1 million and invested that in a fixed annuity at 3%, you would receive $30,000/year in interest. However, fixed income streams are risky if inflation ever picks up.
Annuities are usually offered by insurance companies. I'm not a big fan of insurance investments because of their low rate of returns. If you're looking for growth over income, I recommend using a different type of investment.