Another year has gone by without a new post here. Very little has changed in the Dividend Café portfolio. That was the idea, buy good companies that pay consistently growing dividends and have some growth potential.
The results were good again this year. Dividends increased by 12.8 percent, and portfolio value up by 18 percent. It was a very good year for the portfolio. We continue to hold two companies that do not pay dividends. Berkshire is a US company where we occasionally sell a few shares to pay for US vacations, and Constellation Software. These shares we use to do our charitable giving. (no capital gains tax when gifting shares) The only re-investing of dividends we do now is in the TFSA’s. The rest are withdrawn and redirected to spending, and one new investment we started in August of 2024. An opportunity presented itself from a Private Lending firm where my son had a summer job. I have known about private lending for some time, but there was no need as our dividend strategy was working well. We had accumulated some cash in a savings account and since I have a hard time sitting on cash, we thought, why not. This firm has a great track record and has excellent collateral for every loan, so risk is manageable. We dipped into our emergency fund (HELOC) to get to the minimum required for the investment. When you get 13 percent from the investment, and pay 6 percent on the loan, it works very well. The loan is now almost paid of, and perhaps we will look at adding a second one some time in 2025. Other than that, we are not planning to make any changes.
I am attaching an article here about how private lending works. I was written with help from my editorial assistant, Copilot.
Exploring Private Lending Investments: A Path to Lucrative Returns
Private lending investments have emerged as a compelling option for those seeking high-yield returns outside traditional financial markets. Unlike conventional investment vehicles like stocks and bonds, private lending offers a more personalized and potentially lucrative investment strategy.
What is Private Lending?
Private lending involves individuals or entities providing loans to borrowers in exchange for interest payments and the return of principal upon maturity. These loans are typically secured by real estate or other assets, ensuring a degree of protection for the lender. Private lending firms act as intermediaries, connecting investors with borrowers and managing the loan process.
Benefits of Private Lending Investments
- Higher Returns: Private lending can offer significantly higher returns compared to traditional investments. Interest rates on private loans often range from 8% to 12% annually, depending on the risk profile of the borrower.
- Collateral Security: Most private loans are secured by collateral, such as real estate, reducing the risk of default. In the event of non-payment, the lender can seize the collateral to recover their investment.
- Diversification: Adding private lending to an investment portfolio provides diversification, reducing overall risk and enhancing returns.
- Direct Impact: Investors can see the direct impact of their funds, as they are often involved in specific projects or businesses.
Risks Involved
- Default Risk: Despite collateral, there is always a risk that borrowers may default on their loans. Due diligence and careful selection of borrowers are crucial.
- Illiquidity: Private lending investments are not as liquid as stocks or bonds. Investors should be prepared for their capital to be tied up for the duration of the loan term.
- Regulatory Risks: Private lending is subject to varying regulations depending on the jurisdiction. Investors should be aware of and comply with all legal requirements.
How to Get Started with Private Lending
- Research and Choose a Reputable Firm: Investigate firms that specialize in private lending and have a solid track record. Look for transparency, good reviews, and comprehensive services.
- Understand the Terms and Conditions: Read and understand all terms and conditions before committing your funds. Pay attention to interest rates, loan terms, and collateral requirements.
- Conduct Due Diligence: Assess the borrower’s creditworthiness, the value of the collateral, and the feasibility of the project. This minimizes the risk of default.
- Diversify Investments: Spread your investments across different loans to mitigate risks. Do not put all your funds into a single loan or borrower.
Conclusion
Private lending investments through a firm can be a rewarding addition to any investment portfolio. With higher returns, collateral security, and direct impact, it offers an alternative to traditional investment vehicles. However, it is essential to understand the risks involved and take necessary precautions. By partnering with a reputable firm and conducting thorough due diligence, investors can navigate the private lending landscape successfully and reap the benefits of this dynamic investment strategy.
Disclaimer
As with any investment, it is crucial to consult with a financial advisor to tailor strategies to your specific financial goals and risk tolerance. This article provides general information and should not be considered as financial advice.
