Handing over control of something can be difficult. We prefer to make the decisions that most affect our lives. This includes investing, where we have more resources than ever before. Online tools give us investment advice and help manage our own portfolios.
However, control remains a primary difference between large and small investors. Passive investors depend more on the market and expertise of others to determine their returns. Active investors have the capital to control where and how money is invested.
Thankfully, the tradeoff between convenience and control does not have to limit your investment choices. You can still invest in prime asset classes with a smaller budget.
These include:
- Real Estate
- Venture Capital
Here are strategies to consider:
Real Estate Investment Trusts (REITs):
Investing in real estate is out of reach for most budgets. You may not qualify for financing and all cash deals are often required to be competitive. The market savvy to see value in properties also takes time to acquire.
REITs are an easy way to invest in real estate despite limited funds. A hybrid REIT is a publicly traded security that owns real estate and also lends money to investors. You can choose REITs that invest in certain regions, overseas markets and sectors. Income investors appreciate that many REITs currently pay yields far above risk free treasuries, which compensate you for the added risk. The hybrid REIT earns money in 3 basic ways:
- Collects Rent
- Earns Mortgage Interest
- Profits from Selling Properties
The different sources of revenue lower risk in what is a volatile asset class. Unlike owning a property, you can easily buy and sell REITs based on market conditions.
How to Buy REITs: You can buy as little as 1 share through a discount broker. There are many REIT mutual funds, as well.
Tip: Given the high income payouts, tax conscious investors may prefer to have REITs in retirement accounts.
Example Strategies:
Healthcare REITs: Healthcare news is the big buzz across America. You can buy REITs that invest in medical properties to capitalize on this trend. Since property markets do not move in tandem with equities, you can benefit from separate trends in the performance of healthcare stocks and real estate.
Weak Dollar/Overseas REITs: The American Dollar continues to be weak against many foreign currencies, such as the Euro. You may consider REITs that invest in overseas markets with stronger currencies. Your dollar adjusted returns will be higher when converting into greenbacks Of course, currency strength is just one factor to consider, but can boost returns.
Crowd Funding Loans:
Do you want to be a venture capitalist? Crowdfunding makes private equity available to the masses. Various platforms allow individuals and companies to raise money for different causes. The reasons range from social causes, business capital or debt reduction.
Certain sites cater to particular niches. Film Producer Elliott Broidy chose Indiegogo for funding to feed homeless youth in 2013. Entrepreneurs may prefer CrowdFunder or EquityNet, which feature more small business borrowers.
Borrowers set the repayment terms and you can browse countless profiles. You invest small amounts of $25 and up to earn interest, product discounts or exclusive offers.
Strategies: Ladder a peer loan portfolio by maturity and purpose. For example, you may invest in 1 month, 2 month and 3 month notes. Consider shorter maturities to lower risk. When a loan is repaid, you reinvest the principal and interest in another note.
Some things to consider:
- Peer to Peer loans are very speculative. Crowdfunding sites check if the borrower exists, but little else. Peer lending should not be the core of your portfolio and only invest money you’re prepared to lose. Stay within your comfort level and stick with small amounts.
- Focus on profiles with the most detailed information. For example, a business should breakdown how and for what the money will be spent. You may also research online reviews and news about the company. A business that provides quality services, but simply lacks capital, is a more compelling story.
Summary:
Investing continues to offer more choices for smaller budgets. Please speak with an investment professional, as needed.