What is the difference between “Hope So” investing and “Know So” investing?
The terms “Hope So” and “Know So” have become more popular since the 2008 market crash timeframe. The phrase “Hope So” relates to money that investors have at risk – in stocks, bonds, and mutual funds. The idea is that these investors “Hope” that the markets treat them right and they are paid for the risk they are taking with their money. The phrase “Know So” relates to safe money (principal protected) options that are available for investors today. The idea is that these investors “Know” that their funds are safe and they can “Sleep Well At Night” – SWAN.
What are some examples of “Know So” investments?
There are more choices today for investors who wish to keep the principal of their investments safe from market loss/volatility. In the past, traditional bank products were the most popular products in the “Know So” world of investing. Here are some examples of other “Know So” investments:
Fixed and Fixed Index Annuities
In the past, these contracts were built more for creating a lifetime income stream. Purchasers of these contracts gave up the flexibility of accessing their principal, for the security of providing a lifetime income stream. Today the contracts are more flexible.
First Position Commercial Mortgage Notes (FPCM)
These are short term commercial property loans that have the security of a first lien position on the hard asset real estate. These are non-owner occupied properties, so they are very different than the mortgages that caused the real estate market problems in the 2007-2008 timeframe. Most of these notes have low Loan to Values (LTVs). This creates a “buffer” between what is borrowed against the property, and what the property is worth. FPCMs are very short in nature – usually 12 to 18 months, so the investor’s funds are not locked up for a long period of time. These notes are good choices for laddering strategies, so that liquidity goals and objectives can be more easily achieved.
Equity Linked CDs
These are FDIC backed CDs, which have a minimum rate guarantee over the term selected (terms are usually 5 years – 10 years). They offer the ability to participate in the stock and bond market performance without subjecting the principal to any market risk.
Structured Cash Flow Products and Structured Settlement Annuities
These investments can take the form of guaranteed payment streams that are backed by an insurance company, a pledge of a pension stream of income, and other backing sources, all of which create a low risk way of creating income.
Which one, “Hope So” or “Know So,” is the best option?
This question depends on the circumstances. If the need is monthly income, with a demand of security of those payments, “Know So” would most likely be a more prudent choice. If the ultimate goal for the investment of funds is capital appreciation, history has shown that the equity markets provide the best chance for higher returns over the long term. If current taxation is a concern, meaning that the investor is concerned about adding more taxable income to their return, “Hope So” investing may provide a better fit, whereas “Know So” investing would most likely provide ongoing interest payments, which would result in taxable interest income.