The Exempt Market is higher risk and so it can be expected that, at some point in time, you may experience a loss on a private investment. Whether it is a large or small investment though, losses can be very hard to deal with.
This is particularly true in the Exempt Market for a couple of reasons:
First, when an issuer runs into trouble, the losses can be quite significant.
Second, more often than not, losses can take a significant amount of time to realize.
With a stock, even if you are in a negative situation, you can still sell the stock and realize the loss. You will likely still feel the same dismay at having lost money but it has happened and you can move on. With private securities, the process can take a long time to wind everything down and crystallize what (if anything) you will be receiving back. This tends to make it feel even worse because you continue to feel the loss through the whole wind up process.
So, if things don’t go as planned and you lose money in a private investment, should you continue to invest in the Exempt Market in the future?
There’s a lot to take into consideration, and I’m here to help.
I’m going to lay it all out for you here – the pros, the cons – and then also make some recommendations based on your own particular situation. After that, I feel you will be fully armed with the information you need to make an informed choice about your private investments.
FIRST STEP – REASSESS WHERE YOU ARE AT
Things change over time and it’s likely that your situation now is different than when you originally invested. Here are 3 key things to consider right from the start:
YOUR FINANCIAL STATUS
It’s certainly possible that there have been some changes here, particularly related to oil and the economy over the last few years.
This review is important both to determine if you have funds available that you’d like to invest and also to determine if your “eligible” or “accredited” investor status has changed.
YOUR CURRENT ALLOCATION TO THE EXEMPT MARKET
In the past, there were not a lot of guidelines here – for Dealing Representatives or Investors. There were no investment caps and no formal recommendations about how much an eligible investor should place in private securities. There was also not a lot of history yet to guide these decisions.
In today’s Exempt Market, the Exempt Market Dealers make these recommendations for investors and WhiteHaven Securities (my EMD) recommends that “eligible” investors not invest more than 30% of their net financial assets in private securities (and that amount can be much less). And of that 30%, not more than 10% in one particular investment.
With these percentages in mind, we can figure out how much of your current portfolio is made up of private securities and then adjustments can be made as needed.
YOUR CURRENT SITUATION & FINANCIAL OBJECTIVES
Some of the key things to look at here are your age, your time horizon for investing and your risk tolerance.
It’s important to reassess the first two if you are nearing (or in) retirement, and very important to reassess your risk tolerance. It may have changed now that you have experience in the market and have seen some of the challenges over the years.
MY RECOMMENDATIONS AT THIS STAGE:
Taking this all into consideration, and looking at your own personal situation, I would be happy to sit down with you and make recommendations any time at your convenience.
But even if you are just going to read this post, I think you will be able to determine yourself if your situation has changed significantly in any or all of the areas discussed above. Here’s what I recommend:
If your allocation to private investments is higher than 30% or even just more than you are currently comfortable with, and/or you are in retirement and looking for shorter term investments with instant liquidity and much lower risk, it is time to start diversifying out of the Exempt Market. (P.S. If you land in this category, you can stop here and reach out to me. I’ll meet with you, we can look at your whole picture and find some solutions to re-balance. You’re also welcome to read on though – particularly if you feel you might want to revisit private investing in the future).
If your current private investments make up less than 30% of your overall financial portfolio, and you still have some years ahead to save for retirement, you may want to consider investing more in the Exempt Market.
SECOND STEP – REASSESS YOUR OPINION OF PRIVATE INVESTING OVERALL
Even though you can invest more in private investments, after experiencing a loss, you might question why you would want to.
This is where I come in to help because I’ve been in the private investment markets for a long time and I believe I can put it all in perspective and also tell you about a lot of positive things that have happened over the years for investors:
THE FIRST THING TO REMEMBER IS THAT INVESTING HAS RISKS. INVESTMENTS LOSE VALUE OR FAIL. INVESTORS CAN LOSE MONEY
This is true of almost any type of investment and particularly in a high-risk market. There will be gains and there will be losses as this is the nature of investing.
FORTUNATELY, THE EXEMPT MARKET CONTINUOUSLY EVOLVES & IMPROVES
Private investing is still very new to the average “eligible” investor. Generally, the ability to invest privately became mainstream around 2005 – 2008 and then came back strongly in 2011/2012. To read a very Brief History of the Exempt Market click here but suffice it to say that every failed issuer and investment leads to the market becoming stronger and more transparent for investors.
YOUR EXPERIENCE IS INVALUABLE
You’ve gained experience in a market that can be very lucrative and is still largely unknown. This experience will take you forward and help you evaluate new opportunities.
TODAY’S ISSUERS ARE EXPERIENCED AND DELIVERING STRONG, CONSISTENT RETURNS
Nothing is ever guaranteed but with less investment capital to go around, investors have access to the best investment opportunities that are available in this higher risk space.
DIVERSIFICATION IS KEY
Spreading your capital out among several issuers helps to mitigate your risk. With multiple, strong, experienced issuers in this market now, that is easier to do.
TODAY’S PRIVATE INVESTMENTS HAVE A LOT MORE OPTIONS
Early redemption options
Different industries instead of such a huge focus on real estate
YOU HAVE AN EXPERIENCED DEALING REPRESENTATIVE WHO WORKS WITH A STRONG EMD
This becomes extremely important as time goes on. A strong EMD will perform extensive diligence on the issuers and investments and have a track record to prove that. An experienced Dealing Rep will have seen all sides of the Exempt Market and will always work in your best interests.
MY RECOMMENDATIONS AT THIS STAGE:
If private investing is still suitable for a portion of your portfolio – the Exempt Market is, in my opinion, one of the best places to find the higher returns you’re looking for. Here’s why.
TO SUM UP
Any type of investment loss can be hard to take but hang in there, reassess, re-evaluate and find the best opportunities to take your portfolio forward to retirement. Whether you are looking for public or private investment opportunities, I will always help you every step of the way.
Exempt Market Dealing Rep
E: email@example.com C: 403-872-4010 TF: 1-855-872-4010
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