Investment of Court Settlements

Apart from the element of the award compensating for specified the past losses, the rest of the award is to provide financial support for the rest of injured party's life.

Whether it is to provide for just the loss of future income and pension benefits or also for the cost of medical attention, the money has to be invested to provide for the rest of that person's life.

Although the time horizon is apparently long and there is a clear need to maximise returns, providing a regular and reliable income is a major priority. In this situation some capital risk may be acceptable in the short term because of the long time horizon. However, there is very little if any scope for compromising on the present and future capability of the portfolio to generate an income that maintains that persons standard of living. Any capital risk undertaken by such an investor is restricted by the need to protect the income stream in the long term and also protect it against inflation.

Most investment advisors are very much focused on the next five years or ten years. This is an investment problem where the time horizon might stretch fifty years into the future or even more.

Given the current economic situation the recent past is unlikely to give much indication of what is to come, in even the short term. A long-term perspective is required, and that provides us with the certainty of change and hopefully some idea of the scale of the changes that are possible.

In this situation it is important that any advisor is has a good grasp of the scale of the changes that the future might have in store and the likely impact on future investment income.