[00:01:44 – 4:07] The right investor — Suitability and accreditation
[00:04:15 – 04:57] The right amount per transaction: risk tolerance and liquidity
[00:04:57 – 05:32 The right amount across the portfolio
[00:05:30] The right amount: Diversification
[00:06:56 ] – The right security: return profile and investment analysis
[00:08:11 – 09:30 Funds vs. direct private investing
[00:09:46 – 10:35] – White paper on private investing
When planning to go grocery shopping, the odds of producing a memorable feast go up sharply when you’ve planned ahead. A recipe, whether for meal prep or investing, can increase your chances of success.
As more and more people seek alternative ways to grow their wealth, direct private investments offer exciting opportunities for accredited investors to “enhance their diet” by selecting high-risk, high-reward ventures.
But with so many from which to choose, have you developed simple guidelines to steer you through your investment decisions? In a recent episode of the Direct Private Investments Show, Matt Brown sat down with Bruce Roberts, CEO of Carofin, an investment bank, to discuss the three essential components of successful direct private investing – the right investor, the right amount, and the right security. These are the three key ingredients for direct private investing done the “right” way, according to Roberts.
The Right Investor:
Suitability and accreditation are crucial when determining if an investment is the right fit for an investor. Due to the risky nature of direct private investments, an investor should consider numerous factors. These can include liquidity needs, tax status, financial demands, investment objectives and time horizon, overall allocation to non-registered securities, industry concentration, macro-economic trends, and risk tolerance for potential losses.
Accreditation, on the other hand, refers to meeting specific financial criteria set forth by the Securities and Exchange Commission. As noted in Carofin’s white paper, “Accreditation & Suitability,” an accredited individual is anyone either who has earned income exceeding $200,000 (or $300,000 together with a spouse) in each of the prior two years and reasonably expects the same for the current year, OR has a net worth over $1 million, either alone or with a spouse (excluding the value of the person’s primary residence).
The Right Amount:
In short, is an appropriate amount being committed by the investor? Determining the right investment amount involves assessing one’s loss tolerance, portfolio allocation, and diversification. Investors must weigh the nominal dollar amount they can afford to lose against their overall liquidity and investment portfolio. Limiting their overall exposure to illiquid private investments and making numerous smaller investments is a good course to follow.
The Right Security:
The right security must match the investor’s desired return profile – be it current income through a debt instrument or capital gains via an equity investment. Thorough investment analysis is crucial in assessing the likelihood of the issuer delivering on the security’s promises.
Roberts likens discerning investment choices to selecting sushi from a conveyor belt – picking the best options and avoiding the bad ones. Just as no one wants to eat bad sushi, investors must exercise discretion in selecting the right direct private investments.
To gain a deeper understanding of direct private investing done the “right” way, Bruce Roberts has written a white paper available in Carofin’s Knowledge Base – “Private Investing the ‘Right’ Way.”
There’s a plethora of investment choices available in alternatives. By applying a “menu” to guide you, focusing on the right investor, the right amount, and the right security, you can make better informed decisions and maximize your potential for success.
Watch the full episode above. If you’re looking for direct private investment opportunities, feel free to review ours here.