DESCRIPCIÓN DE LAS DISTINTAS ALTERNATIVAS

Whenever you are offered what seems to be an extremely attractive busi-ness proposition, it pays to be skeptical. Put yourself in the position of the person offering the deal. Anyone who is looking for money to finance a project will turn first to cost finance sources and methods. A low-risk proposition with a high return is easy to sell to bank lenders and other investment specialists who offer investment funding at normal rates of interest. Finding individuals and investors and offering them high rates of return make no sense if low-cost financing is available. If it is not, than the project is almost certainly a higher risk than normal sources of finance will accept. Should you accept that risk? At the very least, you should recognise that it is not a low-risk proposition. Count on it: high potential returns on investment inevitably with high risk; that is, they are danger-ous.

It is useful to bear in mind also that making sales efforts at the “retail”

level — selling to individual investors — is a costly proposition. Hiring people to search for small amounts of money from individual investors is a high-cost way for an entrepreneur to raise money for any business venture. It is also a sign that banks and other large “one-stop shopping”

investors — the professionals who make a living by finding good ventures and funding them — are not interested in that venture. If these banks and professional investors are not interested in the investment, you should ask yourself, “Why should I be?”

Finally, there is the issue of investor vulnerability. Investors are subject to what economists call the principal-agent problem. This problem arises when there is a potential conflict between what is best for the principal (in this case the investor or owner of funds) and what is best for an agent who is paid to do something on behalf of the principal. If you have ever taken a malfunctioning automobile to a mechanic for repair services, you have some experience with this potential conflict as a principal. As

What Everyone Should Know About Wealth and Prosperity

the mechanic reviews your situation, you are hoping that he or she will be a good agent for you and tell you that the problem is minor and that it can be fixed quickly and economically. The mechanic, however, may prefer that you have a really serious problem that will lead to substantial income from selling parts and labour to fix your car. Because the mechanic is likely to know more about automobiles, you are in a vulnerable posi-tion.

Similarly, when undertaking an investment, you, as the principal, are vul-nerable. The interests of those marketing the investment to you are almost always far different than yours. While you want to earn an attractive return, they are likely to be primarily interested in the commission on the sale or earnings derived from management fees or a high salary related to the business venture. Put bluntly, their primary interest is served by getting their hand on your money. They do not necessarily seek to defraud you;

they may well believe that the investment is a genuine opportunity with substantial earning potential. But no matter how nice they are, how well you know them, or how much it appears that they want to help you, their interests are different from yours. Moreover, once they have your money, you will be in a weak position to alter the situation. Thus, you need to recognise both the potential conflict and the vulnerability of your position, and act accordingly.

How can you tell beforehand whether an investment is a wise one? There is no “silver bullet” that can assure positive results from all investment decisions. But there are things you can do to help you avoid investment disasters costing you tens of thousands of dollars. The following are par-ticularly important.

If it looks too good to be true, it probably is. This is an old cliché, but it is nonetheless true. Remember, it would not be surprising to find invest-ment marketers willing to do just about anything to obtain your money because, once they do, they are in charge and you are vulnerable.

Deal only with parties that have a reputation to protect. Established com-panies with a good reputation will be reluctant to direct their clients into risky investments. For example, an initial public stock offering by an upstart brokerage firm that few have heard of, is far more likely to result in disaster than the offering of an established Wall Street firm with a substantial rep-utation on the line.

Never purchase an investment solicited by telephone or e-mail. Such mar-keting is a technique used by those looking for suckers. Do not be one.

Do not allow yourself to be forced into a quick decision. Take time to de-velop an investment strategy and do not be pressured into a hasty deci-sion.

Do not allow friendship to influence an investment decision. Numerous people have been directed into bad investment by their friends. If you want to keep a person as your friend, invest your money somewhere else.

If high-pressure marketing is involved, grab your checkbook and run in the opposite direction. Attractive investment can be sold without the use of high-pressure marketing techniques. If you already have a substantial portfolio, there may be a place in it for high-risk investments, including

“junk bonds” and precious metals. But those investments must come from funds that you can afford to lose. If you are looking for a sound way to build wealth, most of your funds should be in more mundane lower-risk investments.

What Everyone Should Know About Wealth and Prosperity

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Teach Your Child How to Earn Money and Spend it