Ask Money

Investing in toxic assets

Chris Farrell Mar 31, 2009

Question: Is it possible for a small investor to invest in the toxic assets that the federal government is buying and loaning money against? I think they have the potential for high returns and I would like the opportunity to invest a small part of my savings in them, but I don’t know where, or if, they will be available. Most of what I have read about them suggests they are available to high income investors only. Thank you, Mary, Seattle, WA

Answer: It sure looks like individual investors will get the chance to invest in toxic assets. It will be an extremely high risk bet, especially after taking into account the cost of entry, fees, and the uncertain value of the underlying assets.

A trip to Las Vegas might be more fun.

Of course, the big players in this market will be hedge funds, giant institutional investors, and high-flyers from the multi-millionaire and billionaire club. Still, a number of major fund companies, such as Pimco and BlackRock, are interested in creating funds open to individuals. The funds wouldn’t welcome the Joe the Plumber investor, however. So far, it appears that the basic blueprint is a closed end mutual fund with a hefty minimum investment in the $25,000 to $30,000 range. A closed-end fund sells stock to investors, and then the fund takes that money and invests it. In this case, the investment would go toward toxic assets. The shares of a closed end fund often trade on an exchange, such as the New York Stock Exchange or the American Stock Exchange.

Stay tuned.

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