Finding Interest-Bearing Accounts Paying 4-7% with Minimal Risk (Part 2)
In this day and age, when conservative investors are unhappy with the low rate of return on Certificates of Deposits (CDs), Government Bonds and Annuities, investors are asking, “Where can we put our money that is extremely safe, while at the same time yield a high rate of return?” These investors want to at least double or triple what they could get at Bank of America with the same low level of risk.
One low risk answer is to buy guaranteed annuity payments in the secondary market. A prudent investor can buy these annuities at a discount that lottery and Courtroom Settlement winners sell for “cash now.” You’ve heard the ads on TV and radio by companies such as JG Wentworth and Peachtree Funding. Why do they want to buy these annuities? Because they can buy these annuities at a discount from people who have lottery payments and structured settlement payments in exchange for a lump sum payment. If they can do it, why can’t you?
Learn more with a presentation here: structured_settlements.pdf
Show me real secondary market deals available right now
But if you Google “guaranteed annuity payments,” all you will find are companies looking to buy merchandise for 50-75% off retail prices. In other words, they are looking for people that won the lottery and are getting 5,000 per month for 10 years. They are looking to buy these payments for a huge discount. These companies (Factoring Companies or FCs) then sell them in huge packages to European Banks and large pension funds for 35-50% discounts. These securities are guaranteed by major insurance companies and States (for lottery payments). The guaranteed rate of return is 4% to 7% (effective interest rate) – more that TWICE what one could get at the bank using the same kind of risk parameters, so it makes sense that professional investors would be interested in these cash flow streams…and so should you.
Sounds too good to be true, how does this work and what is the catch?
The biggest catch to the originators of these payment plans are taking a big discount by selling them to you and me in the secondary market in order to get all of the money up front. The biggest catch to you, the investor, is that you are trading a lump sum of money for a monthly payment, like you do when purchasing a CD. Keep in mind though, that you can resell it for a lump sum anytime you want. That notwithstanding, it is a win/win situation for everyone because nobody is forcing anyone to sell their payment plans. In the United States, the most litigious country in the world (94% of all lawsuits in the world are instituted here), about $6 Billion per year is generated in legal settlements for personal injury or wrongful death claims that are settled so that the claimants (plaintiffs, annuitants) get their settlements in periodic payments over time.
For all parties, this works out to be a wonderful arrangement, and in fact, there are about $100 Billion worth of these contracts in force in the U.S. today. Because some of these settlement winner’s find that their circumstances change and they cannot wait 5-10 years for their monthly check, they sell their future monthly checks at a big discount. About $2 Billion of these settlements are sold each year with the same benefits and assurances that the original owner enjoyed.
There has been some confusion among both advisors and their clients as to how these arrangements are transacted and regulated, and why the rate of return is so high when the risk is so low.