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Long-term investing
in the stock
market can offer a passive return
around 5-8% if you remain invested for 30 years; but,
unfortunately, that return is before taxes and
inflation. This is so low because the company
founders, backers, early investors,
investment bankers, etc., have removed all foreseeable
profit from the company before it is ever offered to
the public market. There is a spectrum of investments
available to you that is dependent on how much effort
you are willing to put into educating yourself,
networking, and performing your own investment due
diligence. If you don't want to do any
work, you are going to receive the tiny return of a CD
or mutual fund in exchange for supporting many people
(in expensive suits) in between you and the actual business
that is making money. For people willing to educate
themselves and put forth added effort, they will be
sitting across the table from business
owners and managers; investing
directly into a business
that pays monthly or quarterly cash returns from 10 to
over 20%.
For example, let's suppose that there is a great
single-family rehabber in your area. This rehabber
buys homes in bad condition, fixes them up, and then
quickly sells them for a profit. If he or she were
very good, they will begin taking on several
simultaneous or larger projects until they run out of
money to buy any more homes. Once they run out of
money, they start using their credit until that is
used up as well. Once a successful entrepreneur is out
of cash and credit, the only way to grow is to partner
with investors. And to entice these investors, they
offer higher than average returns. [I want to make a
very important distinction between what I define as a
start-up and an on-going business.
A start-up is a few people that only have a business
idea who want to spend your money instead of theirs ,“
never invest in them! Leave these to the professional
evaluation of a venture capital firm. An on-going business
is already being run by someone professional who has
current customers, suppliers, location, products, or
services", these are the types of businesses you
want to invest in.
You may be simultaneously networking with local business
owners, educating yourself about their industries and
the local economy, and checking the reputation of
those with whom you are interested in becoming a
partner. Introduce yourself as someone that has been
watching their success, and indicate that might want
to invest in one of their future projects. It could be
a business
owner who has four retail stores and that you will
like to invest with them to open their fifth store; or
the owner of a local manufacturer needs some capital
to startup selling products overseas; or invest in a
developer that splits large plots of land into
residential lots; or an investor that packages
privately held mortgages. There are many local investing
opportunities that offer the investor greater control
than buying public stock, along with higher investment
returns.
Direct ownership requires a few skills that buying a
CD or mutual fund doesn't require, but you will be
well compensated for developing these skills. The
first skill to learn is some basic accounting because
financial numbers is the language of every business.
You need the basics to start reading financial
statements in order to evaluate potential deals. If
your desire is to invest in car dealerships, you need
to know the difference between a well-run or a
poorly-run dealership from reviewing their financial
statements. The next skill is networking to locate
deals that will get your phone ringing, business
card circulating, and e-mail account filling with
potential deals. Private equity and debt financing is
normally offered to family and friends, then
acquaintances; and this will only happen if you are
meeting people and talking about what you are looking
for. The third skill is performing due diligence;
which means independently verifying as much as
possible about the individual, the company, and the
transaction so that you can be reasonably confident in
getting paid in full. Few local private offerings will
have a prospectus written by teams of lawyers and
accountants who have dissected the offer, so you,
personally, have to do the work. No matter if this is
a relative or a friend, there are people who will
steal your money and disappear or people that mean
well but are unable to follow-through and build a
successful business.
In either case, your hard earned money is long gone so
you should take great pains to get independent
third-party verification of all the facts and history
that you can.
I personally know a few people that have built their
wealth with the high returns from private placement
offerings, and wouldn't invest in the stock market due
to the lack of control and lower average return. If
you have the willingness to put forth the effort,
great returns can be yours as well.
By
investing.real-solution-center.com
About The Author:
Francis Kier has an MBA in finance and shares his two
decades of experience with investing
and personal finance. More of his articles are
available at investing.real-solution-center.com"
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