In the world of individual investing, the goal is to achieve an income, live off less than you make, accumulate savings, invest it and then through the magic of compound interest it accumulates over time to achieve another stream of income. The good news is the process happens on a regular basis, what there tends to be is once you have accumulated an amount how do you protect the number one rule – try not to lose money.

In an article by Claire Fu and Daisuke Wakabayashi of The New York Times News Service, one of China’s largest investment firms, Citic Trust, had a very clear message to investors, when it was aiming to raise $1.7 billion to fund property development in 2020; there is no safer Chinese investment than real estate.

Citic Trust is the investment arm of the state-owned financial conglomerate Citic, called housing China’s economic ballast and an indispensable value investment. Citic Trust was partnering with Sunac China Holdings, a large developer.

3 years later, investors have recouped only a small fraction of their investments. 3 out of the 4 fund’s construction projects are on hold or delayed because of financing problems or poor sales or both. Sunac has defaulted and is trying to restructure its debts.

The back story is over 25% of China’s economy was based on property investments or the rising housing price. What started as a housing slump has escalated through a full-blown crisis. The budgets of local governments, which depended on revenue from higher real estate prices have been destabilized. All the ties that once ejected growth are now deepening the downturn as problems spread across the economy.

3 years ago no one would have dreamed of the degree of defaulting, now more than 50 companies have defaulted on their debts and are in the process of restructuring.

Trust firms such as Citic are arms of China’s so called shadow banking system that sells investments to companies and wealthy individuals. They face few regulations and manage over $3 trillion in assets.

Property developers relied on trust firms to extend loans and invest in businesses that regulators considered too risky for traditional banks. The banks turned the loans into investment projects that were sold to Chinese companies and wealthy individuals promising lucrative returns.

The market was booming when Citic Trust established the Junkun Equity Fund and the idea was Sunac would develop the projects and then sell then. Investors would get their money back as well as a portion of the profit after 3 years. The expected return was double digits.

One investor in the article, invested her life savings of $420,000, because Citic is a big brand with a good reputation. The manager all but assured her she would receive her principal back plus interest of a minimum 7.5%. Since then, she has received $80,000 in payouts, the rest is unknown. Citic says the entire market is now good now.

Linking to dividend paying stocks, once you have accumulated money, you will look at a variety of options. There will be companies offering you higher returns than normal and you will be tempted. In the case above, because it was a big brand, likely the lady received more than if it was not a big brand, but in reality, she has lost money or the money will be tied up for years. There are and will be multiple offerings once an investor has accumulating money, learning to say no is a key and not doing something often saves you money. One of the reasons to invest in dividend paying companies that over the years they have raised their dividends through various economic cycles, the stock price goes up and down but the dividend remains.

There are more questions than answers, till the next time – to raising questions.