There are simple questions that you should ask if you are considering investing in a private venture? The old saying that “if it sounds too good to be true then it probably is”. If this is the only way we judge an investments worthiness we are not doing a good job in our due diligence. We should be wary of promises of high returns with little or no risk. Let’s look at some simple questions that we want answered before we give our retirement money to anyone.
- What is my risk? All investments carry some risk, but higher returns typically mean higher risk. Be careful of misleading information telling you that there is little or no risk in these high yield investments.
- Is the firm selling a product that is regulated by local or federal regulators? You want to deal with firms that have full disclosure of their financials and report to some government regulator. If often pays to check the public record for recent documents that the company has filed.
- What are the fees? What are the total fees for this investment? Ask about entry and exit fees. What is the commission for the sales person?
- What is the exit strategy? Can I get my money back when I ask for it? Are there fees or penalties for cashing out?
- Do I have security in real property with this investment? If not, you may not have the comfort level that you desire with this investment. It may carry more risk than you want. Be careful with terms like secured and guaranteed.
- How much debt does this company have? And does it have loans to other related companies? Some companies have been found to be lending to related parties or related companies. These conflicts should be fully disclosed as well as the risks of these associations.
- Do you understand the investment? You should know your investment and this includes the company’s financial statements. What sectors is my investment in? How long has the company been in business? You should know the history of the management team and the company.
These are just a few questions that you want to discuss with anyone selling you an opportunity in a private venture. There are many other questions you could ask, but this is a good start for you. Do your good due diligence on any investments you are considering.