Sometimes the Safer Bet is Riskier

What is the difference between a 5% and a 12% return on your investment?  Some people might say the availability of each investment; and others might say the risk of the investment itself.  I agree with both, but really what do availability and risk mean in the long run? 

Let’s first take a look at a simple compounding chart below.

Wow, the magic of compounding money!  The person with the 5% return runs out of money in only 6 years.  The person with the 12% return never runs out of money.  In fact, their money continues to grow every year, by a lot.

Now, let’s ask the same question again:  Which is more available and which is riskier?  That depends on the investment itself. 

The 5% return is usually a long term CD.  Available and secure.  Usually FDIC insured up to $100,000, if it is in an FDIC insured bank.

The 12% return is difficult to find and sometimes much riskier, but is it really?  At Equity Lending Partners we have a solution for both of those challenges.  The 12% return we have available today.  Then what about the risk?  Our investments consist of 1st Trust Deeds backed by the security of the property, and low loan-to-values.  You own and control a portion of the real property secured by a Deed of Trust and the Protective Equity in that property.  If the property is worth $1,000,000, we will normally lend $650,000 or less (65% loan-to-value or LTV).  Your Protective Equity is $350,000.

Lastly, when you look at the chart, where do you want to be in 15 years?  Nothing in this life is guaranteed, but mathematically speaking, the end result of 5% vs. 12% is guaranteed to be worlds apart. 

Maybe the bigger risk is not maximizing your earning power.