I was in an appointment not too long ago with someone who just sold his veterinarian hospital. When he came in, it was as a a favor to a friend. Truth of the matter is that he did not want to be in my office at all. He has an investment professional in his life and since he felt that everything was in good shape, he didn’t need any more help.
What I haven’t told you yet is that he feels this strongly because he not only received a nice payout from the sale of his business, but he also negotiated a 20-year lease on the hospital property. It is that lease income which is giving him all the confidence in the world that he doesn’t need much help from me, or anyone else for that matter.
How would you feel if you had all the income you need for the first 20 years of your retirement?
After learning more about this person, it became evidently clear his success was built on smart decisions and hard work. His hard work allowed him to sell his business for a nice lump sum value. His smart decisions allowed him to negotiate keeping his building and leasing it back to himself for the next 20-years.
It is the 20-year stream of income that has given him the confidence to take on retirement. However, when I asked him what his expectations were for the lump sum he received for his business, he simply said that he doesn’t want to lose it. That struck me strange.
You see, the reason he feels the way he does is because he has a stream of income for the next 20 years. Yet, he is not even trying to invest the lump sum in the same manner that got him to that place to begin with. Here is what I am talking about. I gave him this following illustration to help him understand my perspective, and allow me now to share it with you.
If you know anything about buying raw land, the only way to make money is to sell it for more than you bought it for. This is a tough and uncertain transaction, not to mention the time you need to sit on the land to hope it grows in value. This is how Wall Street invests for the average consumer. They buy raw land. They want to use your hard-earned money as the tool to purchase land and hopefully sell it for a profit in the future. The big problem with this is that no one knows if the land will appreciate. The ONLY way you can make money is if the land appreciates. This seems like a risky proposition to me.
In my opinion, there is a much better way. We only need to look to the individual I was meeting with. Years ago, he bought a property that he has since leased to the company that bought his veterinary hospital. That property allowed him to produce monthly income. He did not buy raw land but rather something that produces income. The market offers these same types of investment vehicles; they are called dividend paying stocks.
Non-dividend paying stocks are like raw land where you would need to sell them for more than you bought them in order to make a profit. On the flip side, if you own a dividend paying stock, you can actually sell the stock for less than you bought it for and still make a profit. Furthermore, you can live off of the dividend income, just like he is living off of the lease income. Income producing investments like dividend paying stocks pay you for the privilege of holding your money. Raw land and non-dividend paying stocks hold your money without returning any income.
It’s time you stop buying raw land and start building an income stream the will help you build confidence leading into your retirement. If you need help in this area, please feel free to reach out to someone in our office for assistance.