Alternative investments cover a very wide range of investment tools,. The 401kman's book "50 Ways To Fix Your 401K" covers many of the various means towards investing into the alternative investment space. One of the most talked about and probably one of the safest investments outside of the typical markets and real estate is the life settlements field or investments made into a pool of fractional life shares of the life settlements industry. The 2017 Tax Cuts and Jobs Act (TCJA) has also brought a renewed focus into this space making people more aware of its existence.
Fractional life shares are a relatively new development in the life settlement space. With the emergence of these vehicles, individuals can now gain exposure to an asset class traditionally reserved for institutional investors such as banks, mutual funds and investment firms.. A life settlement is a transaction where a policy owner, usually age 65 or older, sells their policy to a third---party investor for a sum of money greater than the cash surrender value but less than the policy’s face amount.
The seller receives more than he would have received from the insurance company while he is alive typically not needing the policy, and the investor receives a fixed return on his investment. For an institutional investor, life settlements are a compelling buy and hold proposition. Life settlements offer double-digit return potential with low risk to principal and no correlation to capital markets. According to an 11---year empirical study by The London Business School, purchasers of life settlements across their sample could have expected to earn annual returns of 12.5% from 2001---2011, with a low of 11% per annum from 2005---2007 and as much as 18.3% in 2011.
Since 2001, banks have committed capital in excess of $35 billion to the asset class. Citing baby boomer population growth, interest---rate driven cash values, and growing awareness in the financial community, Bernstein Research predicts that the industry could reach $160 billion by 2030.
Unfortunately for the small investor, the process of finding, purchasing, and servicing life policies is complex and highly regulated. As a result, the general public has missed out on this opportunity. With the emergence of fractional life shares, however, qualified investors can now realize the superior risk--- adjusted returns that institutions have enjoyed for years.