E Should You Invest In Structured Settlements Or Bonds?

The stock market is probably the most popular form of investment in the world, but that is up for debate especially given the value of transactions executed on a daily basis in the forex market. However, these two are not the only ways to invest. There is at least a dozen more alternatives out there. Fixed income investing is one of them, and this can be further subdivided into a few sections.

Investors who go for fixed income do so in a bid to diversify their investments in risky assets, like stocks and forex. The bond market is an attractive option, especially when you consider investing in T-Bills and Notes.

However, some investors aren’t quite as impressed with the yields in the bond market, which leads them to consider other fixed income investments like structured settlements. For those who are not quite familiar with this form of investing, Jeff Greenfield at SettlementSpecialist.com provides an in-depth insight into structured settlements.

Here is a quick rundown of how structured settlements work

Basically, when a plaintiff is compensated in a lawsuit, they can be paid in a lump sum, annuity, or a mixture of the two. It all comes down to what the plaintiff and the defendant agree depending on the circumstances of the plaintiff. In most cases, payments are usually made in installments given the fact this is the more effective way for the defendant’s insurance company from a cash flow perspective. In others, a lump sum is paid later, 5 years, 10 years, or even 15 years after the ruling.

After this, the insurance company finds investors willing to invest in the given structured settlement. Due to the different circumstances involving each case, annuity payments are often irregular and dissimilar to any previous case. For instance, some settlements might offer $2,000 monthly payments for the next 12 months, while other could offer $10,000 payment within the first two years and another $20,000 after three years.

Normally, what happens is that an investor pays a lump sum at a discount rate equivalent to the annual rate of return offered. It’s a classic (FVA) future value of an annuity (the principal amount paid to the plaintiff) versus (NPV) net present value (lump sum paid by the investor).