Several years ago, a relative invested $42,000 into a new business startup. A few years later, she began receiving dividends. After some more years, the business was sold. When the transaction closed she received a check for $97,000. Pretty good; her investment return is over 18% per year, and qualifies for lower capital-gains taxes.
So how was she able to do this?
She and her husband are steady savers. Since their first jobs, they would add $4 a week to their savings account. As their income increased, their small deposits grew larger in size. The continual and steady addition to savings allowed her to make a down payment on a rental property by the time she was 25. A couple decades later, she is now netting $2,100 a month from this rental. Note that her rental income from one little property is far more than the average social security retirement check! By making a routine of adding to savings, she and her husband have been able to make many similar investments through local networking. By becoming knowledgeable before they invest, these investments are usually profitable.
For example, a friend of theirs was opening a dry cleaners. As they are heavy savers, they were able to put up $17,000 to buy a share of the business. Their annual return, paid in dividends, is higher than private equity funds hope to achieve.
Their three-step plan:
- Setup your living expenses so that you have a sustainable savings plan; or you cannot build up savings to get into investments like these.
- Educate yourself before investing. Don’t succumb to the old proverb, “A fool and his money are soon parted”
- Invest with knowledgeable, trustworthy, and profitable business operators.
Of course, not every investment is a grand slam or even a winner. But by continually employing these three steps, over and over, they have had enough large winners to vastly overcome any losses. This also allowed them to ratchet up their lifestyle spending from investment income, and they have the option of early retirement. So how are your investments growing?