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What are Secured Investment Contracts?

Saturday, March 20th, 2010

What are Secured Investment Contracts?  How do they work?

Secured Investment Contracts are a new kind of investment that can be made into a company like a stock.   The difference between a stock and a secured investment contract are huge.

Stock investments into companies are owning a part of a healthy company, as the stock prices rise and fall, you either earn money or lose some money on your investment, and when you want out, you just sell your stock for the profit or loss that it took in the time you owned it.

With Secured Investment Contracts you are buying corporate bonds in a company that are offered some obscenely high return rate of like 181% within the next year.  You are buying into a bond with the company saying they owe you money at a determined interest rate from anywhere like 6 months to 30 years or more.  They are like the US Treasury Bonds where you buy into a larger company, except the US Treasury bonds are backed by the US Government and the Secured Investment Contracts are backed by the private firm that you are buying into.

The US Government has a near limitless ability to raise capital to lend out more money or pay back the money it has borrowed and there is no question that US Government is going to fold and go bankrupt any time soon (with the recently Stimulus bill included.)  The private company that you would invest in, does not have the same ability to raise capital or have the long standing ability to fend off problems with cash flow.  So in short, just because you invest in a company, doesn’t mean they will be around long enough to pay you back on your investment and capital.

If the company goes under, then you lose your money or if you are lucky, you get a little bit of it back but not all of it.  You also have to take into account what order the bonds and debts are to be repaid if things do go badly for the company and they file for bankruptcy.

Invest carefully, and fully understand the full potential and downside of any trade that you enter into.