How the Rich Invest
One technique of the rich is to supply cash to those who need it badly. The rich are able to make higher returns when they provide cash to those who really need it. But aren't these investments more risky? Not necessarily.
Consider these two types of people.
- Those who win lawsuits and the court requires that their settlement be in the form of an annuity. The annuity pays out over many years (to prevent the person from spending all of the money at once and soon being left with nothing).
- Those people who buy long-term or life annuities and then decide they need the cash instead of the payments.
Now let's assume that at some time during the many years of receiving annuity payments, one of the above investors need instant cash.
People with cash (i.e. rich people) can buy these annuities (called secondary annuities as they are offered on a secondary market) and give the annuity owner the cash they need. You could be such an investor and invest like the rich. The good news is that the payments are guaranteed by the insurance company who originally issued the annuity.
Would you feel comfortable owning secondary annuities with payments guaranteed from companies such as MetLife, NYLife, Prudential or Allstate?
Here's an example of a secondary annuity I purchased.
Secondary Annuities - My Investment
A woman had payments coming to her (as a result of a legal settlement) over many years and wanted the cash now. So I purchased the following stream of payments for $300,000 in 2009:
Secondary Annuity Payments
Secondary Annuities - 60% More Yield, Same Safety
My yield is 8% on the payment stream. Similar annuities purchased directly from the insurance company at that time paid 5%. And my payments are guaranteed by Metlife, an AA- rated insurance company (rating by Standard and Poor's).
The payments were assigned to me by the court and come to me directly from Metlife. I have no interaction or dealings with the original annuity holder.
So rather than buy annuities directly from the insurance company, rich investors buy secondary annuities on the secondary market and get a much higher yield.
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