Life Settlements: A Risky And Wild Investment

As investors seek options that are resistant to the instability of the Real Estate and Securities markets many new options (and old ones) are being touted by promoters. Some are safe, others entail serious risks. This article is a great summary of issues to think about in Life Settlements.

Ike

(Dow Jones) Life settlements are not wildly popular investments. But they are wild investments. And to that end, federal regulators and lawmakers are fast at work trying to tame these slippery products, which promise a much higher return over more traditional conservative offerings.

A life settlement is a transaction in which an individual with a life insurance policy sells that policy to another person, who then assumes responsibility for paying the premiums.

For a great overview of the RISKS involved in these policies see the entire article:
http://www.fa-mag.com/fa-news/5882-life-settlements-a-risky-and-wild-investment.html

MUNI BOND BOND EXPOSURE - WARNING

This article by investment expert Jeff Christenson was originally published in this month's issue of WORTH magazine. It sheds light on how the economy and depressed tax revenue threaten the value of Muni Bonds, what many consider to be the safest part of their portfolio. A must read for advisors, investors and CPAs. - Ike

As State Budgets Troubles Worsen, What’s Next for Muni’s?

A new crisis, that has not yet been addressed, exists within state and municipal
budgets. According to the Center on Budget and Policy Priorities in Washington, DC, an unprecedented level of state fiscal problems have been brought on by the worst decline in tax receipts in decades and these revenue declines show no signs of letting up.

The current recession is expected to be more severe than the last one, causing state fiscal problems to deepen and last longer than previous recessions. At least 48 states are addressing budget shortfalls for fiscal year 2010 totaling $168 billion and an unusual number of these states are still struggling to adopt a budget for fiscal year 2010, two months after the July 1st start date.

These fiscal problems are expected to continue into fiscal year 2011 and likely beyond. At least 36 states are anticipating significant deficits for fiscal year 2011, and these shortfalls are estimated at an additional $180 billion. Combine the shortfalls for the 2010 budget and those estimated for 2011, and the estimated total is at least $350 billion.

Unemployment, which peaked after the last recession at 6.3%, has already exceeded 10%, and many economists expect it to continue to rise. This continued rise in unemployment would further reduce state income tax receipts, thereby significantly increasing demand for Medicaid and other state-provided services. Also, sales tax receipts have fallen more severely than during the previous recession due to a reduction in the consumer’s access to sufficient lines of credit. This reduction in state revenue has forced states to implement a combination of spending cuts, withdrawals from reserves, and use of federal stimulus dollars. When combined with falling property tax receipts due to rising residential and commercial delinquencies and defaults, state and municipal revenues may continue to decline for some time.

Although we see a high level of risk in the municipal bond markets currently, with equity markets rallying, municipal bonds trading at premiums, and more cash moving off of the sidelines and into the markets each day, market conditions may stay positive through year-end or early next year before the sentiment reverses.

Investors who cannot afford to lose their current unrealized gains from the recent rally should be cautious and mindful of the increased risk to capital and strongly consider moving out of municipal bonds to protect capital.

During last year’s financial crisis, municipal bond prices fell by an average of 20%. The current rally has led to a recovery in pricing, with many municipal bonds again trading at premiums. This recovery in pricing is concerning, given the increasing budget shortfalls and the most extensive expense cuts by states and municipalities in history. Given the relatively low yield of most municipal bonds, the ratio of risk to reward seems out of balance. In fact, this may be one of the greatest selling opportunities in history.


Link to the article in WORTH: http://worth.com/index.php/advice?id=168&view=single

Disclaimer:

The views are those of Jeff Christenson and should not be construed as investment advice. All information is believed to be from reliable sources; however, we make no representation as to its completeness or accuracy. Past performance does not guarantee future results.

Securities and Advisory Services are offered through Multi-Financial Securities Corporation, member FINRA, SIPC. Christenson Wealth Management is not affiliated with Multi-Financial Securities Corporation.

STATES RELEASE LISTS OF TOP INVESTMENT SCAMS

I am seeing a massive increase in investment fraud, theft, and embezzlement among our affluent business owner clients right now. This exposure is coming from both outside sources AND partners, executives and employees of all types.

I continually post issues and warnings here, in my private email update newsletters to clients and advisors and on Twitter to try to help, but the scams evolve so fast and multiply so quickly that it's impossible to keep up with this human "virus", even with the help and tips supplied by other top pros like my friend Greg George at
GTI-ADVISORS.COM, a leading professional due diligence firm.

The list below is currently being circulated by state and local govt. nationwide and includes many of the issues that I have commented on previously including here in my previous post on Affinity Fraud taking advantage of personal, religious and cultural connections: http://tinyurl.com/kjdwxm

Please take a moment to protect yourself or your clients by taking a look at this report, it applies to EVERY city and state in the country.

LIST OF TOP TEN INVESTOR FRAUD SCHEMES:

http://www.cc.state.az.us/Divisions/Administration/news/090821Top%20Ten%20Investment%20Schemes.pdf

New FRAUD Schemes Prey on Personal, Religious and Cultural Connections to Build Investor Confidence

Ike Devji, J.D.
© 2009

Something quick, down and dirty I want all our clients and partners to be aware of, as you folks are the ideal candidates for the bad guys – you are among the most successful people in the U.S.

http://www.fa-mag.com/fa-news/4036-sec-advisor-scheme-targets-chinese-americans.html

UPDATE 8/7/09 - Former Rabbi Charged in $35M Tax Fraud Scheme http://tinyurl.com/muesxf

As markets continue to fluctuate and rattle investor confidence a new series of alternative investment fraud schemes are emerging and being exposed faster than I can post all the details.

In times of crisis many people feel comfort doing business with a personal or social contact or a member of their own religious or ethnic community. Unfortunately that comfort level is replacing normal standards of due diligence and often intentionally sidesteps the professional advisor relationships that an investor may have in place, often with tragic results.
Many of these schemes are dressed under broad terms such as private offerings, hedge funds or are related to purchasing intangibles, like deeds of trust.

Common excuses for exclusion of the investor’s advisors include:
- They won’t know how this works;
- Your friends are all in the deal and they all had their people check it out;
- They will say no because we will compete with them;
- This is a special private deal for friends and family only;
- We have an NDA (non-disclosure agreement) you will need to sign and keep this offering confidential;
- We need you to make a decision and fund immediately because we have other investors waiting for this opportunity;
- We have our team and they have checked this out with our own high dollar lawyers;
- We have the “support” of such and such big bank and you they checked us out

Any one or even a few of these may be actually true and valid on any deal, but I have never seen a legitimate opportunity where the promoter used all the tricks on this list. If they have a deal that is worth being part of they will allow you to ask questions and do your homework.

Will your CPA or other advisor have an issue with signing the NDA if he is reviewing an offering on your behalf? I doubt it.
Invest, make money – take calculated risks and allow your team to help guide you! As always – walk with awareness and call us for help if you need it.