Investment Opportunity: Toxic Asset Funds

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Sun, May 3 - 9:54 am EDT | 5 years ago by
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Part of the plan for helping relieve some of the taxpayer burden due to toxic assets removed by the government from bank balance sheets is to get people to invest in them. And you and I will have a chance to take part by investing in toxic asset funds.

Investing in toxic assets?

There is a chance that these assets will eventually recover (the ones that don’t completely fail). Indeed, Kiplinger reports on what some think could happen:

Optimists think these distressed assets will recover much of their lost value if two things happen: One, the nation’s financial sector stabilizes and eventually climbs out of the hole. Two, the government creates a workable, liquid market in which the public can buy and sell the assets at fair prices. The government intends to be a 50-50 partner with private investors in the plan, known as the Public-Private Investment Program, or PPIP. If all goes swimmingly, the assets could leap in value from the 15 cents on the dollar that experts estimate the worst of them are worth today to perhaps 30 cents to 60 cents on the dollar.

751221191_fdb8eae75cThe question you have to ask yourself is this: Do you really think these toxic assets will be able to double or quadruple in value? If you do decide to invest in toxic asset funds, you will have to understand that they will be risky. Additionally, there will be liquidity issues when it comes time to sell. And you won’t be able to short — they’ll be long only.

Personally, I won’t be adding toxic asset funds to my investment portfolio. And certainly not to my retirement account. If you are considering them, they could pay off big — if you can absorb the risk. I would consider using only money that you can afford to lose in these investments if you should take the plunge. For the riskier investments, only “play” money should be risked.

Disclaimer: I am not an investment professional. Nothing in this piece or on this Web site should be construed as investment advice. Before making investment decisions, do your own research and/or consult with an investment professional. All investment comes with the risk of loss. You are responsible for your own investment decisions and any loss that may result from your decisions.

image source: TW Collins via Flickr

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