The right wealth vehicle Choices. Choices. Choices. We all make them. Every time. There are always multiple choices and multiple consequences. And we have to live with the consequences of right or wrong choices. Yet, not making a choice at all is almost always worse than making a wrong choice. Life is a risk. Going out and coming in carries its own risk but sitting at home and doing nothing because you want to avoid the risk of going out may lead to death faster than going out. Yet, foolhardy decision making is not the path to take but careful evaluation of options and consequences may help you reduce your margin of error and guarantee greater success. And if there is a list of top ten areas where, ultimately, the accuracy of your choices is necessary, it is in the financial consequences of your choices. Wealth creation has often been the fascination of men. From the rush for gold in El Dorado to the search for diamond. From the search for oil to the search for greener pastures. We are always seeking. And this is no different in real estate investment and wealth creation. There are many vehicles and there are many destinations. A wise person will choose his or her destinations carefully by first choosing the right vehicle. For, despite your best wishes, the wrong bus, train or plane can only drop you at the wrong destination except you change the vehicle and you do it fast. Many people enter into real estate investment with the mindset that any vehicle they enter will take them to the right wealth creation bus stop. They fail to consider a few factors such as time and risk. When you arrive at a destination is as important as the vehicle you take. By taking the wrong vehicle your delayed arrival at the right destination may frustrate your purpose. For instance, two individuals having the same amount of money to invest in real estate may attain different financial results because of the type of real estate investment they choose. One of these two investors might become a millionaire in 10 years, while the other may attain the same in twenty or may even loose his or her investment outright. Also the quantum of risk each investor is willing to carry differs and the possibilities attached to those risks are different. The good news is that real estate investment is one of those investments that carries a lower amount of risk and thus protects you from greater consequences in case of errors. For instance, if you buy a low growth area by error or ignorance the appreciation rate for your capital may be slow and low but at least your capital is safe and secure. Many other investment vehicles are not so generous. A mistake will often cost you your entire investment and put your finances in jeopardy. Thus, we need to tread carefully. The starting point of a good decision making is to determine the goal. Why do you want what you want? Your goal must be S.M.A.R.T. It must be specific, measurable, articulate, realistic and time-bound. For instance, are you going into real estate investment because you are planning for your retirement income? If so, what amount do you think will take care of your projected standard of living? When will you retire? Which real estate investment vehicle is likely to take you to that destination within the time available? You can then work backwards from that point. This stage also requires a correct analysis of where you are at the moment. What is your net worth? What are the resources available to you that could help you in the attainment of your visions and dreams? Are you already in the wrong vehicle and need to cut your losses by getting out fast? Are you willing to trade some investments for safer and more secure ones? Are you prepared to restructure your investment portfolio in order to have the right mix of profitability, risk and security? All these require some thought. Your investment decision and strategy should also have boundaries based on information, research and time tested principles of areas that are ‘no go’. There is always a relationship between risk and reward. It is your responsibility to carefully determine your risk level and the quantum of risk you are willing to take. In almost all investment vehicles, the three primary risks are financial, liquidity and economic. Economic risk refers to the effect of inflation on your proposed investment vehicle. If your investment vehicle does not have the capacity to surpass the rate of inflation then whatever income it gives you would have a lower purchasing power. Liquidity risk refers to the issue of how fast you can convert your investment to cash. Sometimes the process can cost you a lot of money. And the process could be slow. Financial risk is the possibility of losing your money outright due to several factors that could be far beyond your control. Whatever investment vehicle you choose or refuse to choose will expose you to one or all of these forces. For instance, a man who decides to keep his money under his bed at home because he is afraid of keeping it in a bank and then losing it. This person’s sole focus is security of funds and total avoidance of risk. But is that possible? Assuming that the money was not stolen, every single day that the money earns nothing, the same amount is becoming less not in quantity but in its capacity. Because of inflation, two years later, he would be able to buy less with the money and thus has effectively lost money. BY ABIODUN DOHERTY
Posted on: Tue, 10 Sep 2013 07:17:33 +0000
Trending Topics
Recently Viewed Topics
© 2015