by John Darer CLU ChFC CSSC RSP
The erudite Kingston New York medical malpractice attorney John Fisher is right. Structured settlements are not an inflation hedge. Who is suggesting that they are?
Structured settlements, whether funded with annuities or treasuries, are boring investments that provide safety, security and guarantees. For those plaintiffs whose financial needs and commitments provide little tolerance for risk and require having safety, security and guarantees that a structure can provide as an alternative asset class however, it may not be prudent to be the sole asset class.
I do find it interesting that Fisher observes that "over the past 25 years, inflation has averaged 4.43% per year, which means that the buying power of your money is diminished by 4.4% per year." [see Fisher law firm web site] He does not cite how he measures the rate of inflation (e.g. the CPI, cost of medical inflation), or why he used 25 years as opposed to 20 years or 100 years, so let's presume he's talking about the consumer price index, a widely used published measure of infation.
Inflationdata.com recently updated its Average Annual Inflation By Decade on November 5, 2012 which shows a long term average of 3.23%. The current inflation rate is 1.99%. Here is the break down decade by decade. for the last 100 years.
How does this non-exclusive list of some popular inflation hedges match up for someone who needs safety, security and guarantees?
A personal injury victim who placed $1,000,000 into the SPDR Gold Trust ETF one year ago would have about $964,000 today due to the 3.59% hit the fund took over the last year. (Source: Fidelity Investments)
A personal injury victim who placed $1,000,000 into the IShares Silver Trust ETF one year ago would have about $940,000 today due to the 6.00% hit the fund took over the last year. (Source: Fidelity Investments)
A personal injury victim who placed $1,000,000 into the Market Vectors Gold Miners ETF one year ago would have about $770,000 today due to the 23.00% hit the fund took over the last year. (Source: Fidelity Investments)
A personal injury victim who placed $1,000,000 into the IPATH S&P GSCI CRUDE OIL TOTAL RETURN ETF one year ago would have about $817,000 today due to the 18.28% hit the fund took over the last year. (Source: Fidelity Investments)
I doubt Mark Twain (November 30, 1835 – April 21, 1910), Will Rogers (November 4, 1879 – August 15, 1935) or John Maynard Keynes (June 5, 1883 – April 21, 1946) would be very impressed with the 'return of my money" results of traditional inflation hedges over the past 12 months. Do you?
But John Fisher IS NOT suggesting that you take a cash lump sum settlement. He suggests a settlement preservation trust which provides spendthift protection through controlled liquidity and a conservative mix of stocks and bonds.
Work with a Settlement Planner who can ask the right questions and help you plan for your future with the right mix of settlement options. No one remedy is exclusive. And there are many financial issues to discuss besides what to do right now with the settlement proceeds.
if you have any questions about settlement planning feel free to conatct me toll-free at 888-325-8640
Post script December 16, 2013. The inflation rate is now 0.96% according to InflationData.com