If you are serious about investing in exempt market products then you will have to understand how the market functions and make the best decision. There are several aspects which you need to keep note of and in the following sections we will look at some of them which will help you in taking the right decision.
Advice on Making Right Investment Decision
One of the aspects while choosing exempt market products relates to judging saturation of expertise in any particular field of business. One example is of mortgage investments have become quite saturated. There are many players in the market and not many critical entry barriers. Similarly, the mutual funds market seems crowded where it is difficult to judge who will outperform the other company.
On the other hand there are unsaturated markets which hold a lot of promise for investors. Let us take the example of solar industry. After the Green Energy Act of 2009, it has become relatively easy to get the FIT contract and many have started believing that it is an easy path to success, but it is actually not so.
Opposite to popular belief, the solar industry is normally a very specialized one and for success operators need to have specialized knowledge. The business in this sector should also have good industry contacts and be able to properly interact with government agencies.
These all specialized requirements in turn create entry barriers. Such barriers in turn lead to investment safety for you and help you get higher returns since only serious and professional companies remain in business after clearing all the entry barriers.
Analysis of Investment Structure
At the time of investing in exempt market products there are many issues which can affect your interest, some of them include:
- In case of investment in real estate, few of the real estate issuers develop a structure where land is purchased for $1 and sold to investors for $4. This method is called as lift where the issuer stands to gain 300% returns and certainly not in best interest of any investor.
- Another common strategy is of paying the management prior to investor’s dues is cleared.
- Other strategies consist of payment of large salaries to management team, offering check stock choices and diluting the funds to take advantage from.
These practices clearly indicate misalignment of interest from investor’s perspective. Thus, you need to look at investment options where your interest is given priority over managements, there are no lifts and a share structure is used in which most of the returns are provided to you.
There are investment options where the management has financial motivation to offer you positive returns and the compensation management group receives depends upon success of your portfolio. At the time of investing you need to look for such options which align with your financial interests.
Thus to conclude we will say that investors need to upgrade their knowledge if they are really interested in earning good returns from their investment and keeping the above points in mind will certainly help them in this regard.