In today’s economy, many people are looking for safe investments for their hard-earned cash. For those looking to make a long-term, relatively low-risk move, structured settlement investments are often touted as being better than bonds [1]. However, there are several reasons why a structured settlement investment is not quite the best use for your money.
Understanding Structured Settlements
In court proceedings and some lotteries, the winner is often granted a series of periodic payments. These payments can be monthly, quarterly or on another schedule entirely. These payments are called a structured settlement. Those who are receiving these payments may wish to get a lump sum instead to buy a home, pay off medical bills or make other large purchases. Investors pay a lump sum and then package the remainder of the structured payments into an investment product. A structured settlement investment is the result. For a more detailed explanation, visit www.structuredsettlements.com [2].
The Risks
The first risk in this venture is that the person or entity required to pay the remainder of the payments fails to do so. While this happens rarely, sometimes the corporation [3] or individual who has been ordered to make the payments will fold or flee the country. If this happens, your investment is lost or reduced.
The second risk, which is much more likely to happen, is that it is difficult to resell the investment. Other products, such as bonds or real estate, are easier to sell. The secondary market for structured settlement investments can be slow, especially if other markets are doing well and outpacing them in returns. For example, if the stock market is doing well, few would want to earn less by buying a structured settlement investment. This can be a big problem if you need to sell the investment later to raise cash quickly.
Better Alternatives
The fact that bonds are more secure and easier to sell off in a hurry make structured settlement investments look like a bad proposition from any angle. Some investors are also able to make larger returns with real estate or less-risky stocks. When you consider that the gains from those investments are much more tangible and easy to liquidate, you can see why structured settlement investing isn’t for everyone.
If you are considering making an investment for the future, make sure to weigh the options carefully. A well-balanced investment portfolio is integral to your financial well being and the success of your retirement plan [4]. If you aren’t sure how to handle your investments, consider contacting a fee-only professional to help guide you in making the right decisions for you and your family.