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Why the Stock Market Is Not Necessarily the
Answer:
The Answer Is…
by
Darius M. Barazandeh, Attorney at Law, M.B.A.
Like
millions of others you are probably wondering where you can attain the
greatest and safest return for your money in the shortest period of time.
Finding the right investment vehicle can be very difficult to say the
least. The stock market can give you stable long term appreciation
potential if you diversify and hold for a number years. Sadly,
however one downturn in the market and years of gains can be wiped out
overnight. Unfortunately,
most Americans will stop looking for other ways to higher yields. They
will leave their money in the stock market and must continually hope that
when they are able to retire the market will stay strong and not suffer
a downturn. In addition,
when they are enjoying their retirement many will have the added burden
of having to constantly watch the market to make sure their nest egg
stays intact.
In my work as a financial consultant and in my study of Finance I formed
the opinion that that the greatest obstacle to attaining wealth through
the stock market is the efficient
market hypothesis (EMH). This
controversial theory is usually only discussed in academic circles but
it affects each of us everyday. EMH
states that it is
impossible to beat the market because prices already incorporate and
reflect all relevant information. Proponents
of this theory state that it is pointless to search for undervalued
stocks or try to predict trends in the market because the market (i.e.,
buyers) has already taken into account risk and growth factors, economic
trends, and future income when stocks are traded.
While I don’t completely agree with the theory it does present
one of the unseen hurdles, when trying increase the value of a stock
portfolio.
The
end result is that there are millions and millions of investors with the
incorrect notion that they can beat the market thereby finding a way to
financial freedom. This is a
very difficult task especially in the short term.
What if there was a way to earn a guaranteed
10% to 50% per year on your investment?
What if there was a way to purchase a high yield investment
instrument which helped the community and put your dollars to good use? What
if the investment vehicle was created and backed by state law and was designed to protect the investor? What if the investment vehicle allowed
you to sleep easy at night because at worst you would get clear title to
the valuable real estate acting as the security for your investment?
There Is Another Way: Tax Lien Certificates
There
is a way to earn a guaranteed return on your investment which if
consistently repeated over time would greatly improve your wealth
position. The answer is
investing in tax lien certificates.
Tax lien certificates are a way for local government to collect
the unpaid revenue from back taxes. The rates of return from tax lien
certificates can range from 8% to as high as 50% within the second year.
Here’s how it works: local governments all across the
United
States
are forced to sell the
property tax liens created by property owners who do not pay their
property taxes. The property
tax lien will remain attached to the property and will not be removed
unless the back taxes are paid. In
many states even bankruptcy will not remove a property tax lien.
Even
though local governments will hold a lien against the property the lien
does not equal spendable revenue for the government entity unless it is
sold. Remember local
governments use property taxes to pay for many needed government
services and running day-to-day operations (such as maintaining
roadways, educating our children, providing law enforcement, etc.).
In
order to get the revenue needed to fund many of these services local
governments can generally do two things: 1) increase taxes, or 2) sell
tax liens to private investors while issuing certificates for the lien
amount. Since most
politicians know that raising taxes can be very harmful for re-election
efforts their first choice is typically to sell off the tax liens
through tax certificates.
When
the tax lien is paid off you are guaranteed the rate of interest on the
certificate. Like a certificate of deposit or CD this amount is your
agreed rate of interest. This rate of interest can range from as low as
8% to as high as 50% for redemptions occurring in the second year.
Remember that your certificate is backed by the real estate behind it,
so in the event that the lien is not paid off the real estate is yours!
If you invest correctly
there is no downside; you either make the agreed upon interest rate or
you take over the real estate for a mere fraction of its market value.
What
Effect Can Proper Investment in Tax Certificates Have?
Quite
simply the effects are astounding. For
example, let’s take a hypothetical investor, Investor A. Investor
A places $3,000 in a retirement plan at age 30 with an average rate of
return of 7% per year for the next 20 years.
This investor’s money would double about once every 10 years.
At the end of the investment term and at age 50 the investment
would equal almost $12,000.
Now
let’s take Investor B, who uses simply uses a strategy of investing in
tax lien certificates with an average annual return of 20%.
At age 30 Investor B starts with $3,000.
Investor’s B’s money would double about once every 3.5 years.
As a result by age 50 the initial $3,000 would have grown to over
$115,000. If that investment
was continued for just another 10 years that initial $3,000 would now
have grown to well over $700,000! From
such a small investment you can be on your way to becoming a
millionaire. One scenario
that is missing from this hypothetical is the effect to your return on
investment if the property backing the certificate becomes yours.
A single tax lien certificate could yield you a profit of
$20,000, $40,000, or more if you sell the property backing the lien.
This would exponentially increase your return!
Proper
Information is the First Step!
As
you can see investing in tax lien certificates allows you to safely use
the laws of compounding to increase your investment. A
well thought out and researched strategy will allow you to safely bypass
the ‘yo-yo’ effect of the stock market because each certificate has
an incorporated safety net. The safety net is quite simply the real
estate which backs the certificate.
Best of all the real estate usually equals a much greater return
than the face value of the certificate itself. Do companies on the New
York Stock Exchange provide a safety net like local governments provide?
No they do not.
Remember
there are many states which offer tax lien certificates and each state
has different rules and regulations. I always recommend learning as much
as you can from people who have proper experience and training. A lot of
people ask me if investing in tax foreclosures is risky.
The truth is that doing anything when you don’t have proper
knowledge and training is risky. Seek
out the experts who are willing to help you.
Always continue to learn and don’t give in to negative people
around you.
Keep
in mind that everything you want in life takes up space.
Many people fail to realize that when we want new things we have
to get rid of the old things in order to make room for the new.
Old thoughts, old ideas, unjustified fears all must make room for
the new possibilities and limitless potential that each day has in store
for us. Keep a positive attitude and learn from the experts and you will
be on your way to fulfilling your dreams. |
