Tontine
Candlefocus EditorIn a tontine investment, an initial group of investors join by each contributing a lump sum of capital. From this point forward, these investors receive periodic payments, similar to dividends, until their death. Upon the death of an investor, their share of the pool is divided equally among the survivors, typically leading to an increase in their percentage ownership of the tontine. This incentive to outlive with peers meant that tontines often had higher returns than other investment vehicles of the time as well as guaranteed safety of the funds invested.
When investing in a tontine, investors had to make sure that the fund was well managed and that the securities purchased were appropriately diversified. The risks associated with tontines include the fact that the funds may be distributed unevenly among the investors once this investment matures. Additionally, the fact that all of the investors have a shared incentive to outlive each other may not be a suitable fit for everyone.
Despite the risks associated with investing in a tontine, the investment remains attractive today for individuals interested in maximizing the return of their investment and for the risk-averse investor. Investing in a tontine may be appropriate for those who are looking for a long-term growth strategy and are comfortable with taking on the risks and rewards of this particular investment. Rising inflation and the increased uncertainty of stock markets have created an attractive environment for tontine investments, making them an increasingly attractive option for some investors.