Our last article--PROMISSORY NOTES FOR BUILDING WEALTH GRADUALLY PART TWO-WHAT ARE THE RISKS?-covered some of the downside aspects of promissory note investing. As an intelligent investor, it is always prudent to look at the downside first. If you protect against the downside risk, the upside will take care of itself.
This article will highlight some of the upside-the rewards-the benefits that promissory notes can provide. Let's talk about the good stuff-the gains and the upside.
REWARDS, BENEFITS, & GAINS
In some cases, what is considered to be a benefit or a reward to one investor may not be one for a different investor. Investing is a personal activity. Let me explain by some examples:
If an investor is now earning 5% on a corporate bond, and feels comfortable, then earning 6.5% on a note may have little appeal;
If an investor is extremely fearful of taking their savings out of a federally insured savings account, then investing in a note in order to earn 6.5% would have no appeal; in fact, it could be terrifying;
If an investor is now earning.8% on a federally insured savings account, and is not satisfied with that yield, and is willing to assume some amount of prudent risk in order to earn 6.5% by investing in a sound note, then doing so would have significant appeal; it could be exhilarating;
If an investor has suffered financial set-backs in the stock market in the past, and feels disappointed, and does not anticipate receiving better results in the future, then prudentially investing in a note might have significant appeal; at the very least, it should be seriously considered.
In short, each investor has to understand his or her own capabilities and comfort level relative to investing. You should not invest in anything that will keep you awake at night. Investing is a personal, subjective decision. It is not a "one size fits all" decision.
REWARDS SPECIFICALLY RELATED TO PROMISSORY NOTES
You are the decision maker You decide how much to invest; you decide what note you invest in; you decide if you want to be a hands-on investor or if you want to delegate part or all of the responsibility to a professional. Essentially, you are calling the shots.
You decide how much risk to assume If you want a low risk investment, you can invest accordingly by choosing very secure notes that yield a very conservative amount. Conversely, as you gain experience and confidence you can seek a higher return by assuming a higher risk.
You decide where to invest If you are only comfortable investing near where you live, that is you decision; if you are comfortable investing farther away, or in a different city, that is your decision.
Your yield/income is predictable If you invest in the stock market, the volatility-ups and downs-have an impact on your income. A dividend can be reduced, a dividend can be eliminated, a dividend can be skipped; you have no control.
You can lock-in long-term yields If you invest in a ten year promissory note you can expect a predictable income for ten years.
You can sell your note investment If your circumstances change, it is possible to sell your whole note.
You can sell part of your note investment If your circumstances change, it is possible to sell part of your note. You can sell some of the monthly payments; you can sell part of some of the monthly payments; you can sell a balloon balance.
You can use your promissory note as "money" It is possible to buy another promissory note by using your note plus cash to cover the purchase price.
You can use your promissory note as an "equity" It is possible to exchange your note as the down payment on a piece of real estate, just like it was "money".
I believe that you can now start to understand the great flexibility and versatility available through the intelligent, prudent use of promissory notes as an investment vehicle. I hope that some of the above information was an "eye opener" for you.
This article will highlight some of the upside-the rewards-the benefits that promissory notes can provide. Let's talk about the good stuff-the gains and the upside.
REWARDS, BENEFITS, & GAINS
In some cases, what is considered to be a benefit or a reward to one investor may not be one for a different investor. Investing is a personal activity. Let me explain by some examples:
If an investor is now earning 5% on a corporate bond, and feels comfortable, then earning 6.5% on a note may have little appeal;
If an investor is extremely fearful of taking their savings out of a federally insured savings account, then investing in a note in order to earn 6.5% would have no appeal; in fact, it could be terrifying;
If an investor is now earning.8% on a federally insured savings account, and is not satisfied with that yield, and is willing to assume some amount of prudent risk in order to earn 6.5% by investing in a sound note, then doing so would have significant appeal; it could be exhilarating;
If an investor has suffered financial set-backs in the stock market in the past, and feels disappointed, and does not anticipate receiving better results in the future, then prudentially investing in a note might have significant appeal; at the very least, it should be seriously considered.
In short, each investor has to understand his or her own capabilities and comfort level relative to investing. You should not invest in anything that will keep you awake at night. Investing is a personal, subjective decision. It is not a "one size fits all" decision.
REWARDS SPECIFICALLY RELATED TO PROMISSORY NOTES
You are the decision maker You decide how much to invest; you decide what note you invest in; you decide if you want to be a hands-on investor or if you want to delegate part or all of the responsibility to a professional. Essentially, you are calling the shots.
You decide how much risk to assume If you want a low risk investment, you can invest accordingly by choosing very secure notes that yield a very conservative amount. Conversely, as you gain experience and confidence you can seek a higher return by assuming a higher risk.
You decide where to invest If you are only comfortable investing near where you live, that is you decision; if you are comfortable investing farther away, or in a different city, that is your decision.
Your yield/income is predictable If you invest in the stock market, the volatility-ups and downs-have an impact on your income. A dividend can be reduced, a dividend can be eliminated, a dividend can be skipped; you have no control.
You can lock-in long-term yields If you invest in a ten year promissory note you can expect a predictable income for ten years.
You can sell your note investment If your circumstances change, it is possible to sell your whole note.
You can sell part of your note investment If your circumstances change, it is possible to sell part of your note. You can sell some of the monthly payments; you can sell part of some of the monthly payments; you can sell a balloon balance.
You can use your promissory note as "money" It is possible to buy another promissory note by using your note plus cash to cover the purchase price.
You can use your promissory note as an "equity" It is possible to exchange your note as the down payment on a piece of real estate, just like it was "money".
I believe that you can now start to understand the great flexibility and versatility available through the intelligent, prudent use of promissory notes as an investment vehicle. I hope that some of the above information was an "eye opener" for you.
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