There are only two things a person can do with currency either a person can buy things or lend currency out to others. If buying things with it is the chosen route hopefully assets are purchased. Check out my post on the importance of assets. However, if you want to lend it out, what should a person keep in mind? There are a few factors that can make a huge difference in how an investment turns out. If something happens to the investment, who is the first in line to get their currency back? Let’s say a company looks like it could be a great investment and so it may make sense to buy a piece of a company via a stock purchase.
There are different types of stock that could be purchased: preferred shares and common stock. If something happens to the business the preferred shareholders receive their money before the common stockholders do. Purchasing preferred shares of a company can reduce risk in an investment in that company as opposed to buying common shares of stock.
Another important aspect of investing is transparency. How much information is there on the investment? Does a company have up-to-date financials, any current litigation pending, company mission, and vision? How liquid is the investment? What is the turnaround time to getting your capital back out to the investment and what is the return? The velocity of currency is important when talking about lending currency out for a return. Next, it is important to look at 4 major aspects of any investment: Capital preservation, yield, equity growth/appreciation, and whether it is tax-advantaged.
Preservation of Capital: This is by far the most important part of making an investment decision. How likely am I to receive my capital back from the investment and how long does it take? Before I invest in anything, I make sure to answer these two questions.
Equity Growth/Capital Appreciation: This is how much the investment will increase in value over a given period of time. If a renter decides to purchase a home the amount the home increases over time would be considered equity in the home.
Tax Advantage: Investments can be structure in a specific way to provide better tax advantages. Because this variable can make a large difference in the outcome of an investment it is important to consider this when making an investment decision.
Yield: What is the return on the investment typically this is expressed in terms of a yearly percentage. An example might be a 10% per year return on currency lent to a private party. This is only secondary to whether capital is preserved.
In the future when thinking about investments, it is important to consider these factors when finalizing any investment decisions.
Disclaimer: I am not a registered investment, legal, tax, or financial advisor. All investment /financial opinions expressed in this post are from the personal research and experience of the owner of this account and are intended as educational material. Although best efforts are made to ensure that all information is accurate and up to date, occasionally unintended errors and misprints may occur. It is very important to do your own analysis before making any investment based on your own personal circumstances. You should take independent financial advice from a professional in connection with or independently research and verify the information that you find in this post to rely upon, whether for the purpose of making investment decisions or otherwise. I own the assets mentioned in this article and reserve the right to buy or sell those assets.
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