Safe but Small: The Trade-off of Secure Investments

The problem with “secure” investments is that
they are often sanitized, that is, made so safe
that the gains are less.

The Arizona market began moving up and, a few years later, a Colorado investor offered us $1.2 million for the property.

The point of this example is how a small amount can grow into a large amount. Again, it is a matter of understanding financial statements, investment strategies, a sense of the market, and the laws.

If people are not versed in these subjects, then obviously they must follow standard dogma, which is to play it safe, diversify, and only invest in secure investments. The problem with “secure” investments is that they are often sanitized, that is, made so safe that the gains are less.

Most large brokerage houses will not touch speculative transactions in order to protect themselves and their clients. And that is a wise policy. The really hot deals are not offered to people who are novices. Often, the best deals that make the rich even richer are reserved for those who understand the game. It is technically illegal to offer speculative deals to someone who is considered not sophisticated, but of course it happens. The more sophisticated I get, the more opportunities come my way.

Another case for developing your financial intelligence over a lifetime is simply that more opportunities are presented to you. And the greater your financial intelligence, the easier it is to tell whether a deal is good.

It’s your intelligence that can spot a bad deal or make a bad deal good. The more I learn—and there is a lot to learn—the more money I make simply because I gain experience and wisdom as the years go on. I have friends who are playing it safe, working hard at their profession, and failing to gain financial wisdom, which does take time to develop.

My overall philosophy is to plant seeds inside my asset column that is my formula. I start small and plant seeds. Some grow; some don’t. Inside our real estate corporation, we have property worth several million dollars. It is our own REIT, or real estate invest
ment trust.

The point I’m making is that most of those millions started out as little $5,000 to $10,000 investments. All of those down payments were fortunate to catch a fast-rising market and increase tax-free. We traded in and out several times over a number of years.

We also own a stock portfolio, surrounded by a corporation that Kim and I call our “personal mutual fund.” We have friends who deal specifically with investors like us who have extra money each month to invest. We buy high risk, speculative private companies that are just about to go public on a stock exchange in the United States or Canada.

An example of how fast gains can be made are 100,000 shares purchased for 25 cents each before the company goes public. Six months later, the company is listed, and the 100,000 shares now are worth $2 each. If the company is well managed, the price keeps going up, and the stock may go to $20 or more per share. There are years when our $25,000 has gone to a million in less than a year.

It is not gambling if you know what you’re doing. It is gambling if you’re just throwing money into a deal and praying. The idea in anything is to use your technical knowledge, wisdom, and love of the game to cut the odds down, to lower the risk. Of course, there is always risk. It is financial intelligence that improves the odds. Thus, what is risky for one person is less risky to someone else. That is the primary reason I constantly encourage people to invest more in their financial education than in stocks, real estate, or other markets. The smarter you are, the better chance you have of beating the odds.

The stock plays I personally invested in were extremely high-risk for most people and absolutely not recommended. I have been playing that game since 1979 and have paid more than my share in dues. But if you will reread why investments such as these are high-risk for most people, you may be able to set your life up differently, so that the ability to take $25,000 and turn it into $1 million in a year is low-risk for you.

As stated earlier, nothing I have written is a recommendation. It is only used as an example of what is simple and possible. What I do is small potatoes in the grand scheme of things. Yet for the average individual, a passive income of more than $100,000 a year is nice and not hard to achieve. Depending on the market and how smart you are, it could be done in five to 10 years. If you keep your living expenses modest, $100,000 coming in as additional income is pleasant, regardless of whether you work. You can work if you like or take time off if you choose and use the government tax system in your favor, rather than against you.