According to the Business Times report Profitable Plots urged to explain defaults to investors, retirees made up a large majority of the investors in Profitable Plots. One retiree by the name of Michelle invested her entire life savings in the company. However, in 2009 due to an eye problem she requested that her investments be liquidated which was not possible. To date, she has lost sight of one eye.
What are the things we can learn from this fiasco? The following are my advice:
- Be diversified in investments. Do not sink all your eggs into a one basket regardless of how good the potential returns will be.
- It is OK to earn 0% in the fixed deposit. There is nothing to be ashamed about. Invest according to one’s comfort level. Better to earn 0% in return than to lose the entire capital in high risk investments.
- For hospitalization and surgical needs, do not rely on retirement money to fund it. Use insurance. We are now in the 21st century in which nobody pays hospitalization expense from out of own pocket. I spoke to a private practice surgeon the other day. He told me that his practice hardly collect payments from patients these days. Payment these days are almost cashless using insurance.
- Be financially educated and understand the risk involved in the investments. Land banking falls under the realm of investing in raw lands. The investment characteristics of raw land are:
- Limited leverage
- Rate of return by appreciation only (i.e. no rental income)
- Taxable capital gain (depending on jurisdiction)
- Relies on planning and zoning permits which is driven mainly by politicians than market forces.
There are many forms of real estate investments but investing in raw land actually belongs to the highest risk form of real estate investment. Raw land investment is actually more suitable for speculator (ironically for short-term gains) and developer (for long-term operating needs).
All other forms of real estate investments have a lower risk. These are: residential rentals, office buildings, warehouses, neighbourhood shopping centres and hotels/motels. Direct investments into these are often not possible for average Joe but many of which have been securitized. REITS is an example of securitized real estate investment.
Finally, the most important lesson is always do a proper financial planning and do not complain when things go wrong because the responsibility to educate one self’s to financial freedom belongs to oneself – not the government, not the financial adviser.
For further reading on the risk characteristics of real estate including raw land, I recommend reading “Real Estate”, Thirteen Edition by James D. Shilling. Copyright by Cengage South-Western.
Category: Financial Planning, Investment | No comments yet