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What does High Yield Really Mean?

High yield investing has taken on a totally new dimension since the introduction of the internet and the basic personal computer. In the United States, a high yield account is considered to be anything over 5% monthly. Of curse as the old adage goes, the higher the yield the larger the risk. This is true. You can not expect to earn more than an average percentage rate with less risk. It just doesn’t make sense.

When discussing high yield interest accounts, are we talking about a savings account that produces a 5.4% annual percentage return? Well, yes. And no. It depends on who you are and what you consider to be possibilities and realistic.

By now most of us have heard about investment programs that claim to be able to produce ridiculously high returns. Traditional investors cringes when they hear terms like 25% per month for one year plus the return of principle, and they nearly quiver when they hear claims of 300% in eight weeks. Certainly these high yield investment programs must be scams. How can it be possible to produce such returns in such a short amount of time? And why isn’t everyone out there doing this if it can really happen? If these high yield investments hold any water then in just five short years we could wipe out poverty and homelessness and no child would ever go to bed hungry or sick again!

Are High Yield Investments Scams?

Believe it or not this question is not a simple yes or no response. It can’t be. The short and safe answer would be yes, they are scams. However, it is important to understand what they are and why they have not all been shut down by the government if they are nothing more than a way to steal your money.

High yield investment programs are not a place to try to earn an income. They are extremely volatile and unpredictable. People can and do make money from them, and sometimes it’s a significant amount of money. But don’t get excited and start rushing out to re-mortgage your house just yet.

Read every single disclaimer on a high yield investment program website and they will all say the exact same thing. High yield investing comes with the risk of losing money. Never invest more than you can stand to lose. Why? Because every high yield investment program will eventually crumble and those with money invested are going to lose.

High yield investment programs are based on principles similar to gambling. While most of do not, there are people in the world who make their living traveling around to casinos and gambling. Is it a scam? No. In fact most of us at least respect the fact that the individual is competent enough at playing casino games that they can earn a living at it regardless of how we feel about gambling ourselves. The same applies to earning a living from high yield investment programs. Most investors do not even consider them real investments and scoff at those who attempt to earn a living through high yield investing.

Most people who are able to fund their lifestyle and earn a living through high yield investment programs started in using one of two methods. They either jumped in with both feet at the first program that sounded good to them and lost everything they invested or they researched high yield investment programs until their fingers went numb before ever investing a dime. Either way, both parties came to the conclusion that to come out ahead in high yield investments programs they would have to do ample research and completely understand the system and principles before they were going to succeed.

Earning a living through high yield investment programs takes a system that is easy to implement and follow to prevent early closing and hefty losses. This system takes a lot of due diligence and of course, some very specialized knowledge about forex trading and even gambling.

Reading the website’s method of investment can tell the average high yield investor a lot about the security, or lack thereof, for any particular program. Most will admit to trading in forex, which any average investor can do with a little knowledge and research. Some will tell you that they are trading in commodities as well and some admit that they are also gambling with the investors’ money, literally. Any website that says they are gambling using fool proof methods of winning should absolutely be avoided at all costs. There is no fool proof method of gambling.

High yield investing is probably something to be avoided altogether, although that is an individual choice only an individual investor can make. However, if you choose to get involved with a high yield investment program and you loose your money, that was your choice as well. Just like it is possible to loose money in the stock market, you are likely to loose money in high yield investments. An investor that looses money in the stock market doesn’t typically file a lawsuit against the broker, so why are people so quick to file lawsuits and complaints when they loose money in high yield investment programs?

The answer is unpleasant but for the most part it is true. Greed. We can accept that there are poor investments out there and should we loose three or four thousand dollars in a bad investment we accept it as part of the potential outcome of investing. Yet because we got excited and our minds started spending the money we were hoping to see through a high yield investment now suddenly the people who run these programs are thieves. High yield investments are investments even if they do border on scams and you run the risk of losing your money. Remember the basic principle of any investment? The higher the return the more likely you are to lose your money.

High yield investments are incredibly risky and some of them are actually scams. Scam artists are everywhere and if there are people in the world who are willing to fork over thousands of dollars in the unrealistic hope that they can turn it into ten of thousands of dollars in a relatively short period of time then there will be people who are willing to steal that money from potential investors.

People are willing to donate their money to any valuable cause, so there are people who are willing to set up phony charities to steal donations from giving people. That certainly doesn’t make every charity a scam and people aren’t going to stop donating to charities of their choice. Just as there are individuals who will take advantage of people’s kindness and desire to give to charities, there are individuals who are interested in scamming money from people who are trying to improve their financial portfolio through high yield investment programs. That doesn’t mean every single high yield investment program is a scam.

The one thing all high yield investment programs do have in common is that sooner or later they will all fold, even those that start out being profitable. Just because a high yield investment program starts off producing the returns that it proposed in the beginning doesn’t mean that it will continue to do so over a long period of time. This is how the high yield investor gets dramatically burned. One or two programs that delivers for a period of time doesn’t mean it’s time to quit the job and devote all the available resources to high yield investing. It means that one or two programs are doing well. They will not do well forever and sooner or later they will crumble. That is the nature of high yield investing.

High Yield versus Conservative Investing

Which investment strategy is right for you? Only an individual investor can answer that question for their own interests. Some people can tolerate the significant risk factors while others prefer the stability of the more conservative and conventional methods of investing. Some people are more willing to take a gamble than others, and by all means high yield investing is a form of gambling.

There are dramatically fewer scams in conventional investing. Some people will always believe that high yield investing is a scam and there is nothing that will convince them otherwise. Just because some people are able to be successful doesn’t mean that a program is not a scam. And just because something is a scam doesn’t mean that some money can’t be made anyway. Does it make it right or real or worthwhile? Again this is something that each individual investor needs to determine for themselves.

For solid investment advice and a clearer path to investment success, independent advice and research is the best way to go. For all kinds of independent investment advice, stop by onlinetradingideas for comprehensive investment strategies, advice, and independent research. This site is particularly useful for making the most from conventional trading ideas and profiting from forex trades without having to enter the realm of high yield investment programs.

Between stocks and real estate, most investors tend to stick to one type of investment or the other, depending on what they are comfortable with. But the only issues that should matter when considering an investment is what kind of “true” return on investment can I get verses what is my risk to earn that return. Hands down, real estate is far superior to stocks in terms of both high ROI and security.

Before we begin this discussion, it is important that I point out the major mistake made by just about every other writer who has ever written on this subject; in every comparison of stocks to real estate, either the Dow or S&P values are used as the basis of measuring stocks’ performance, however it is rarely mentioned that the Dow is a select sample group of only 30 stocks and that the original companies of the Dow are not the same as the present companies that make up the Dow Jones. Recently General Motors (GM), along with government bailed out Citigroup, were dropped from the Dow because they both fell below $5/share, and they were replaced by Cisco Systems ($20/share) and Travelers ($40/share). The real estate equivalent of this would be to choose a portfolio of properties in the beginning and then removing a poorly-performing shack from the collection and replacing it’s valuation with a stronger performing Trump Tower. Such a practice makes it impossible to truly measure the performance of the stock market, however it is clear that whatever gains can be measured are “slightly” inflated, if not completely overstated.

Now that we understand the shortcomings of prior comparative analyses, we will choose to use the S&P 500, despite the previous discussion, with the understanding that this provides a slight advantage to stocks, for we will show that real estate is still superior, even in a comparison favoring stocks. There is an abundance of circumstantial evidence all around us for this fact. The most significant and lucrative investment most people make is their primary residence. 85 to 90% of the wealthiest individuals in the world built and hold their wealth in real estate.

What specific ways does investing in apartments and rental properties help us multiply our money faster? There are 4 major ways:

Appreciation. This the gross increase in valuation of the asset. When the stock price increases to a higher value or likewise, when a house increases in value, appreciation is the profit from this change in valuation. Of course, a decrease in value is also possible in both types of assets, and the result of this is negative appreciation. This is the aspect that is most often focused on by previous comparisons. However, despite being the most important income with investing in stocks, appreciation is the least important of the ways of making money in real estate. Individuals who focus on appreciation in real estate are not investors, but speculators, many of whom were the hardest hit because of the burst of the housing bubble.
Depreciation. This refers to an estimation of the “loss” of valuation of investment real estate as a result of deterioration or obsolescence. The wear and tear is not tabulated from a list of specific damages, but rather takes the cost of the asset and spreads this cost over the legally estimated useful “lifetime” of the asset, 27.5 years in the case of residential property. When running your real estate investing as a business, this tax deduction can be huge, along with tax-deductable expenses, in offsetting income and legally decreasing your tax liability. There is no equivalent to this in offsetting capital gains from stock income.
Amortization. This refers to the building of equity in a property as the mortgage on it is paid off over time. This is another way of expressing the advantage of leverage in investing in real estate-the ability to buy an asset with only 3 to 25% of the purchase price and pay the rest off over time, preferably using the asset’s own income, is unheard of in the world of stocks.
Cash Flow. This has to be the sweetest money from your real estate investment; after all expenses, this is what is left over to go straight into your hip pocket. This is analogous to stock dividends, however the company in which you hold stock has the ultimate decision as to whether they will offer you a dividend, and they can change this decision without consulting minor stockholders. A properly structured real estate investment will provide positive cash flow FOREVER. And, again, if you run your investment as a business, this passive income will not be subject to self-employment tax.
About the only clear advantage that stocks have demonstrated over real estate is the relatively greater liquidity that is provided by having a ready market of buyers. However, the knowledgeable and experienced real estate investor understands this, and the investor builds a list of buyers and recruits real estate agents and brokers onto his or her team for this very reason. Even in a tough market, as exists today, investors are able to move property and maintain liquidity.
In addition, the clear and widely acknowledged advantage that real estate investments have over stocks-the ability to leverage your money and credit to buy the asset and the tax advantages and other streams of income benefiting owners of rental properties-are often greatly underestimated and understated. The accumulated tax savings and other hidden income streams when added up is a more than significant amount of money; all the annual tax write-offs translates into more money to leverage and reinvest into more income-producing real estate, and this cycle of reinvesting is the process that will multiply your investment money at a rate that the best stock can never hope to keep up with.

S Koonopakarn is the CEO and Cofounder of Saintly Assistance Financing & Equities Group, LLC, an Atlanta-based investing and consulting company that specializes in real estate and retirement investments. He has the investment plan that will get you back on track to an early retirement without depending on Social Security and without sacrificing lifestyle.