by John Darer CLU ChFC MSSC RSP CLTC
The comments to Jason Zweig's Wall Street Journal Online article, "Another Can't-Miss Deal That Can Miss Spectacularly" , offer an opportunity to address some areas of financial literacy
A. One reader says (as an alternative to purchasing structured settlement payment rights) "Buy a 20 year muni bond and you can receive over 5% tax-free. You'll get a similar payoff with virtually no risk".
- First Point
Here's what was attributed to "legendary investor" Warren Buffett on June 15, 2010 (as published in the Wall Street Journal):
"Warren Buffett is warning of a “terrible problem” in municipal debt and has trimmed his investments. The cost of insuring municipal debt – through credit default spreads — has increased as some communities, such as Central Falls, R.I., have inched closer to insolvency"
- Second Point
in February 2010, Market Oracle analyst Graham Summers wrote an article titled, The Municipal Bond Crisis is About to Begin. The main points were:
- Most state governments are broke or in the process of going broke
- Tax receipts were falling (so less money for state coffers)
- Muni bonds would collapse as governments chose to default rather than honor their payments
- Politicians are terrible allocators of capital. (added 7/1/2010)
- Third Point
Here is a link to the current municipal bond rates from Bloomberg.com
B. Another reader has got individual purchases of structured settlement payment rights confused with structured investment vehicles.
C. Another reader says buying structured settlement payment rights is only worth a second look fi you believe interest rates will stay at current levels for the next 20 years
I guess that reader isn't aware that a deal featuring 6% for the next 10 years, with payment rights backed by an annuity from an AAA rated carrier was on offer last week?
If interest rates rise then the deals available will have higher yields, just as there will be higher CD rates and higher bond rates, higher dividend yields on life insurance policies etc.
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