In this week's commentary on The Settlement Channel, commentator and structured settlement planning expert Mark Wahlstrom, looks at the issue of zero interest rates, or even negative rates of interest, being offered on fixed income investments, in particular structured settlement annuity contracts. One of the constant refrains that structured settlement experts hear from trial lawyers, as well as their clients, is that structured settlements are a bad idea in a world where interest rates are offering effectively zero rate of returns when you factor inflation into the yield at 2%. On its face, you would think it's hard to argue with that logic as the US is clearly in a historic period of zero to negative yields on fixed income and annuities.
However, in practical experience, settlement planners and structured settlement experts have been hearing this same narrative for over 15 years now, as we have been in a 25 year bond market rally where rates have gone from double digits to the current negative or zero yields on high quality bonds and notes. It has always been "rates are too low compared to the past," but all along that 25 year curve, the value of a guaranteed, tax free income has been proven to be the key component of just about every successful settlement plan. The rate of return or yield is important for sure, but the consistency of the cash flow, monthly income, and security are paramount to injury victims who rely on those funds to live. personally attest that 15 years ago people were rejecting tax free yields of 7% to 8% as "too low," when the evidence of the last 15 years now shows that anyone smart enough to take those tax free deals was getting a yield roughly equal to that of the S&P over that same time frame, particularly when taxes and management expenses are deducted and a net yield is calculated.
Wahlstrom concludes that even in a low interest rate world such as we see now, that while it might seem counter intuitive, it's entirely possible in a period of economic turmoil that the certainty and safety of a structured settlement payment stream makes the MOST sense as the people who rely on it can't afford to be with out an income, ever. His advice is don't just focus on rates of return and what you think you might get in alternative investments, instead engage a competent structured settlement expert such as those found on the Settlement Expert directory to assist you in designing a settlement plan that makes sense. Chances are good trial lawyers and their clients won't look back in 10-15 years with buyers remorse if they do.