Where The Smart Money's Going
Direct Participation Programs
NOTE: This article should not be construed by the reader as containing or offering any financial, investment, legal, tax or accounting advice. Any financial computations, tables, projections, or statements are presented for illustrative purposes exclusively. Global Edge International Consulting Associates, Inc. [GEI] assists companies in creating and constructing their crowdfunding campaigns. For further information regarding this, see http://bit.ly/GEIserve . This article is copyright 2015 by Douglas E. Castle, and it may not be reproduced or republished without the author's express written consent unless the article is reproduced in totality without any changes or deletions, all links and images are kept intact and functional, and proper attribution is given to the author of this article and GEI.
With the increasing incidence of high-volatility periods and “corrections” in the publicly-traded capital markets, and with the low interest returns being offered by well-rated banks and bond issuers domestically and internationally, accumulating a small fortune (never mind about a large one for now) through the traditional vehicles of “buy low, sell high” in the stock market, or “ride the yield curve” in the bond market has become feeble propositions. The risk-reward ratio just isn't as inviting as it might have been during some long periods of economic prosperity and market stability years ago.
Additionally, new vehicles for investment, such as crowdfunding, peer-to-peer (P2P) financing and other variations on these themes using the internet as a surrogate exchange have opened up alternative means of investing capital in microdoses with a built-in means of diversification by simply spreading small investments over a large variety of early-stage enterprises. That having been said, these rapidly-proliferating investment vehicles and their accompanying strategies have a great deal of inherent early-stage business risk, but there is the inherent possibility of hitting several winners, even if this occurs just randomly.
Some smart money rules are listed below:
Rule 1: Diversify your investment portfolio in industries which are not interdependent and not correlated in terms of their pricing in the marketplace (in whichever marketplace that you are trading);
Rule 2: Invest in assets which offer you the possibility of gains (due to a rise in market pricing), but which, first and foremost, generate a current “cash-on-cash” return, in the form of interest, dividends, rents, royalties or a flow through of profits. By way of a quick example, if you invest in an asset which generates a 15.00% return per year, you will have recovered 100% of your investment (without considering any income made by reinvesting your 10.00% received yearly) within 6.67 years, after which time you effectively own your investment for “free”;
Rule 3: Invest in assets which are to be managed with a clear operating strategy, and which are not dependent exclusively upon a future “exit strategy” (such as eventually going public, being acquired by a large conglomerate, etc.) for recovery of your invested capital.
Some smart money opportunities (by type) are listed below:
Preferred Stock In Established Companies: Preferred dividend stocks, or preferred shares, are special equity securities that are considered "hybrid" instruments. Although they trade on equities exchanges, preferreds more closely resemble debt instruments like bonds. Preferred stocks normally carry no shareholder voting rights, but usually pay a fixed dividend.
These stocks are generally not as volatile in their market pricing as common shares, but they offer the holder a “cash-on-cash” return, usually payable semiannually or quarterly. You don't purchase them for capital gains... you purchase them for income and total portfolio growth.
In the current low interest environment where banks are paying interest rates of less than 2% on deposits, there are some very stable preferred stocks which are offering dividend yields (the fixed dividend amount divided by the stock purchase price) of 6% to 7.5% – this is between 3 and 4 times what the banks are offering. And when the price of these stocks falls, the dividend yield rises. They are the last bargains left in the public capital markets;
Stock In Startups Bought Through The Various Internet Platforms: These common shares are usually relatively low in terms of price per share, but have some potential for significant capital gains either in the private aftermarket, or if the shares become publicly-traded on a recognized exchange. They are an outgrowth of the crowdfunding movement which has become so big in the westernized nations.
The key here is to buy a highly-diversified “basket” of these shares and watch them grow. While each company (i.e., each issuer of stock) may either rise or fall, with the usual incidence of risk, many of these shares are priced so low that the least bit of good news will cause a significant percentage rise in their market price.
And while you can lose money on some of your individual picks, odds are that your diversification in the “basket” will have it such that the winners outpace, overshadow and compensate for the losers. Look at each of these purchases as if it were a lottery ticket, but with much better odds of winning;
Direct Participation In Business Transactions And Their Related Investment Opportunities: If you have substantial wealth, you may choose to join an investment club or partnership which invests directly in businesses in exchange for a revenue-based royalty, rent, interest, or share of operating income and certain incidental tax benefits in certain cases. These investments are generally not loaded down with brokerage fees and are not subject to market risk or volatility. The only risk is the risk associated with the successful ongoing operation of the actual business itself. You can learn more about direct participation programs by clicking on the link which follows: https://www.google.com/#q=direct+participation , and you can learn more about investment clubs by clicking on: http://bit.ly/CLUBS101 .
Regardless of what you choose to do, know this: The Smart Money is trickling out of the conventional investments, the customary exchanges and traditional structures. That much is reasonably certain. And don't bother to take that to the bank – banks that pay interest at rates which are lower than the adjusted rate of inflation are ways of merely slowing the loss of your wealth.
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preferred, stock, dividends, investment yield, direct participation investment, investment clubs, crowdfunding platforms, JOBS Act, dividend yield, alternative investments, The Global Futurist Blog, GEIconsulting, Douglas E. Castle
Thank you, as always, for reading me,
Douglas Castle for Global Edge International Consulting Associates, Inc. and The Global Edge International Blog
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