As you might already know, I enjoy taking high-risk, high-reward investment opportunities as part of my strategy. Being young, healthy, and armed with a valuable business degree, I have the fallback option of returning to work if things get too risky. So far, things have gone pretty well, except for one investment.
The investment was in a hotel development project in the UK. The plan was to buy a hotel room, and then either resell it for a profit once the hotel was operational or keep it and earn a steady rental income. The project seemed promising—the location was good, appealing to both business and leisure travelers, and the developer had a successful history with a similar hotel. I put down a deposit of just over $30,000.
However, after a year, construction hadn’t even started and the company went into administration, a casualty of the global crisis. The administrators worked on damage control but did not continue the project. It took another couple of years for the liquidation process to begin, which activated the refund clause with the investors’ insurance. Until that point, the insurance couldn’t help because the company was technically still in operation.
I recently spoke with the insurance company, and they confirmed I would get my $30,000 back within a month, although without the contractually promised returns. Since I made the investment, my net worth has increased 2.5 times. Hypothetically, I could have turned the $30,000 into $75,000 or at least paid off my 7% investment loan and earned a 7% return. Even with inflation, I lost money, but I chose to take the risk and don’t regret it. Otherwise, my net worth might not have more than doubled in under four years with similar risky moves. I’m grateful to get the full capital back.
Here are the lessons I’ve learned:
1. **Only invest money you can afford to lose.** Because I had other income sources and savings, I wasn’t overly worried about this investment. If you’re investing, especially with medium-level risks, make sure you can live without that money.
2. **Have your contract checked by a lawyer.** Spend a few hundred dollars to have a lawyer review your legal documents, especially for real estate or alternative investments. Sellers will always assure you that everything is fine, but it’s crucial to scrutinize the safety nets they promise.
3. **Make a background check on the firm.** In the UK, any financial company must be regulated by the FSA. If the company isn’t regulated, you might struggle to get your money back if they vanish.
4. **Make sure the guarantees are legit.** Your investment should be backed by a reputable insurance company, not a related entity. Both companies could go bankrupt, and you might never see your money. In my case, it was one of the country’s largest insurance companies, which made me feel secure.
5. **Until the money is in your pocket, don’t count on it.** When updating my net worth, I don’t include potential returns from investments until they are actually realized. Don’t plan on spending, saving, or reinvesting that money until you physically have it.
6. **Follow up closely.** If the company doesn’t provide regular updates, ask for one or visit the site to check progress. Ensure they are adhering to timelines.
7. **Have the contract state all the what-ifs clearly.** The agreement should specify what happens in various scenarios. For example, my contract stated that defaults would be covered by insurance, but it didn’t mention the timeframe or contingencies if the project was delayed rather than abandoned.
8. **Don’t get bitter.** If you lose money, accept it and move on. In my case, the company was always transparent and efficient, their project just wasn’t viable. Learn from your mistakes and keep going.
9. **Stay diversified.** Spread your investments across real estate, stocks, retirement accounts, and so on. Having a diversified portfolio protects you when some investments go south.
10. **Look for advice everywhere.** Utilize forums, the Citizen Advice Bureau, the Financial Ombudsman, and other organizations to know your rights and get advice on financial products. A quick search can save you a lot of trouble.
This experience taught me invaluable lessons about high-risk investments and the importance of being prepared for all outcomes.