Vetting Your Investment Opportunities

By Peter Rizzo

Life Settlements in a Retirement Account? Think Again.

The Check Book IRA and the checkbook-controlled Solo 401(k) gives you the ultimate control over your retirement savings. With any freedom though comes responsibility. You are completely responsible to make investment decisions on your financial future. You can still use financial advisors and the beauty of it is that they will treat you in a different light for if they don’t perform it’s very easy to take your money and investments elsewhere. The one major piece of advice we give our clients is to thoroughly vet and understand the risks and rewards of your investments. Here are a few tips that we see all our successful investors do.

  1. If you are using a financial advisor make sure her or she is your fiduciary.
    The fiduciary duty requires an investment adviser, by law, to act in the best interest of their clients, putting their clients’ interests ahead of their own at all times. Under the fiduciary duty, an investment adviser must provide advice and investment recommendations that they view as being the best for the client.  In addition to being obligated to put clients’ interests ahead of their own, fiduciaries must also adhere to the duties of loyalty and care. An investment adviser, subject to the fiduciary duty, is required to provide up-front disclosures to the client, before any contracts are signed to provide investment advice.  These disclosures cover important topics such as the investment adviser’s qualifications, services provided, compensation, range of fees, methods of analysis, record of any disciplinary actions and possible conflicts of interest, if any. An investment adviser that has a material conflict of interest must either eliminate that conflict or fully disclose to its clients all material facts relating to that conflict.
  2. Know the risks and rewards.
    Be completely aware of the risks associated with the rewards of the investment. One of our clients said they were investing $5000 in crypto currency and if it went where they thought the investment would be worth 100’s of thousands of dollars, but if it went up in smoke they could live with it.
  3. Can you live with the Downside
    I am a big believer in investing in Real Estate in some form. I realize there have been booms and busts in the real estate market, but with each purchase look at what will happen if the market collapses. With the parameters I have established for the investments I know that I can rent the properties out and wait till the market comes back, which it always has. If I have to sell in a down market I realize the tax savings I have gotten through depreciation and even in the crash properties were sold that still yielded positive net gains. Understand your risks
  4. Become an expert in your investments.
    One of our clients has made a tremendous amount of money trading options. I asked him how he did it for every time I have dipped my toe in I come out bloodied.  He said he took a few courses and became well versed in the timing and put together a system for what he would invest in then interviewed a number of brokers and got their strategies. He sticks to his criteria and has had tremendous gains. Another client invests in mortgages. He is a former teacher and studied mortgage foreclosure trends and came up with a list of knockouts that would mean the investment was exposed to loss. He never ever goes outside his rules. The common denominator is they have a list of criteria and don’t waiver from it.  You can become an expert in all different ways. Partner with an expert and learn. People love to share their knowledge. Use that to your advantage. Don’t be afraid to ask people who are successful in what you are investing in how they became so successful. You will be surprised at how much they share.
  5. If it seems to good to be true there’s a good chance it is.
    There a few things that brings high returns with no risk. A company I was familiar with was selling the financing contracts on equipment they were manufacturing and selling to individuals and businesses. The financial advisor who was brokering these promised yields in the low 20% area with 0% risk  – well guess what – as the contracts started to go into collections there was no way for the investors to get control of the equipment to resell or even go after the buyers for restitution. Needless to say this is in litigation and the only ones making money are the attorneys. Simple understanding of the contract would have shown the risks that even a rookie investor would pick out.Remember how hard you worked for the money that you’re investing and look for trusted advisors and entities that will take your best interest at heart and you will have many successes into the future. Don’t be scared of risk understand it and the only way to do that is by vetting your investments and oppurtunities.

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