With annuities, you invest a little at a time.  We invested a total of $1200.

Let's compare this to a one-time investment like the one's we did in the last section:

If we make a one-time investment of $1200 at 12% compounded monthly, how much will we have at the end of one year?

       Remember the formula:

final amount = initial amount * ( growth factor )^( number of periods )

initial amount = $1200

       At the end of each period (every month), we'll be earning 1%...
       So, each
$1.00 will turn into $1.01...

growth factor = $1.01

number of periods = 12

final amount = 1200 * ( 1.01 )^( 12 ) = $1352.19

Hey, we made more money!  Isn't it better to invest a little at a time?

The reason we made more money is that the $1200 went in at the BEGINNING of the year.  So, the balance was higher the whole year.


But, the realistic question is:  Would you HAVE the whole $1200 at the beginning of the year?  If the answer is "yes," then invest the whole thing.  If the answer is "no," then do it a little at a time.  This is usually easier for most people.

If the amount you want to invest is realistic
for you (like only
$100 a month as opposed
to a chunk of
$1200), then you are far more
likely to invest it!

By the way, the term "annuity" is used when something pays YOU a little each month, too.  It works both ways.  (But, be careful because some people use the word "annuity" as a cloak for bad insurance investments!  You can read more about this on Finance FREAK.)