When you’re looking to build up your financial nest egg, you have a few options. The safest route is to leave your money in a savings account, or a CD, and let interest accrue. The more aggressive option is putting it in the stock market through mutual funds, stocks and 401k’s, or a similar high-risk investment. While the latter could certainly make you a lot of money, the markets are unstable, and you risk losing everything. The former is a safe bet, but with interest rates at historic lows, you’re not going to see much of a profit.
An often overlooked alternative is structured income planning. It’s a predictable income opportunity, and it’s either secured by the Federal Government, a major municipality, or a high value, physical commodity. With a structured income stream, you’re guaranteed a fixed amount of annual interest, and you’ll receive amortized, or periodic, payments. This makes structured income streams the perfect option for someone looking to grow their funds, or as a portfolio diversifier, without taking a heavy risk.
What are Structured Income Streams?
There are a few different ways that you can get into the structured income streams, but they all have one thing in common: You, as an investor, are paying an amount of money to a party, which they will pay you back monthly until the principal plus interest has been paid back. That party is typically a government or corporate institution, but it can also be an equipment leasing company.
With either option, your investment is given to the institution’s client as either a smaller lump sum (think of when a lawsuit plaintiff opts for an upfront sum as opposed to a structured settlement.), or as leased equipment, like a semi-truck. For the former, you become the lender, and they pay the structured payment plan to you. For the latter, the payments that would go to the leasing company go to you instead, with accrued interest.
For the first option, the most common example is referred to as a pension buyout. A pension is a guaranteed cash flow that originates from either a government institution or an investment grade corporation. Essentially, it just has to originate from reliable, financially endowed source.
A retiree from one of these institutions is guaranteed a set amount of money, or pension, spread out over their retirement years. If they choose to cash out or “sell” a portion of their pension income and receive a lump sum, it will be greatly discounted. You as an investor can cover that lump sum, and start receiving monthly payments based on the initial amount.
For the second option, we again return to the semi truck. If a business seeks to lease such a high cost piece of equipment, the leasing company needs working capital to buy it. You, as the investor, give them that capital. The leasing company leases the truck to the client, and the client now owes monthly payments to you, with the stipulated interest.
While these seem different, the end result is the same. You have a secured investment, either against a reliable institution or physical property, and you can receive yearly interest of 7 to 8%, based on length of the arrangement.
Why Structured Income Streams?
What makes structured income streams a better bet than traditional methods? As we’ve said, interest rates on savings are at a historic low. Some people may be looking at returns as low as only a 1% – or less. Other investment options are too risky to put your future financial stability on the line. While the returns could be huge, you’re gambling with your retirement funds. For many, it’s simply not worth the risk.
Structured income streams, however, stay at a constant rate of return. Depending on how long of a period you spread the payments over, you’re looking at 7 to 8% annually, and that will not change for the duration of the arrangement.
When looking for ways to diversify your portfolio, and safely grow your nest egg, structured income streams stands out as a safe, predictable, and profitable alternative.