- Personal Finance
Have You Considered Alternative Investments as Part of Your Portfolio?
Growing Your Money is Entirely Possible – Here is How You Do It!
Not everyone has access to sage advice when it comes to money matters. And the truth is that many of the folks advising you about how best to invest your money are only too eager to get their hands on what you have really worked hard to accumulate. Therein lies the dilemma – finding credible advice to make the right investment decisions. Fortunately, there are a great many ways that you can apply financial common sense to boosting the value of your portfolio and grow your net worth. Contrary to popular belief, you don’t need to invest in the stock market to generate the kind of earnings you want. Consider for a moment that investors have many other options available, such as antiquities, silver and gold, small business investments, treasury notes, peer-to-peer lending, ongoing education, and the like.
What Interests You?
Let’s say you have managed to accumulate a lump sum – perhaps $5,000, $10,000 or $20,000. You may have been able to pay off the majority of your debts and your expenses are in check. Now you’re wondering how best to grow your money. There are many options available to you, but since the market is currently in a state where low interest rates are the norm, it’s going to be difficult to generate substantial growth from bank deposits, and certificates of deposit (CDs). The stock market is always an option, but it is not without its risks. ETFs, mutual funds and index funds are some of the safer ways to invest in the stock market since you’re not committed to a single stock alone. By investing in an index that tracks multiple top performing funds, you are diversifying your risk and allowing for greater payback potential. Much the same is true for a mutual fund.
But remember that if you don’t understand what you are investing in, then you are making the wrong investment. Once money changes hands and the investment has been made, you may incur costs and/or penalties when trying to move in another direction. In deciding what is right for you, you may wish to hire a personal, relationship, business or life coach. Personal and career advancement is only possible if you know where you want to go and how you plan to get there. It may well be that you are seeking to advance your career by advancing your personal education, or that you are seeking business premises to improve your daily operations. In all instances, the betterment of your personal and professional situation is paramount.
What is your appetite for risk and do you need the money anytime soon?
Everyone has a different risk preference. Some folks are cavalier in their approach to risk and are willing to take on volatile investments for high returns. Others are more inclined to mitigate risks and safeguard their principal with minimal downside potential. Throughout it all, you want to remember that investing is a long-term proposition. The minimum timeframe you should consider is 5 – 10 years, perhaps even longer. If you do not require your funds for this time, then you are a prime candidate for investing in any of these options:
Money Market Accounts and Certificates of Deposit (CDs)
These are the ideal secure investment since they are FDIC insured up to $250K. Be advised that the interest rates are low and there are penalties for early withdrawals. Things like CD ladders are increasingly coming into their own. Simply put, a CD ladder breaks up your investment capital into multiple investments. By staggering your investments over multiple timeframes (1 year, 2 years, 3 years, 4 years, or 5 years) you have multiple expiry dates and access to incremental amounts of your capital over the short-term and the long-term. This technique allows you to capitalize on higher rates when your low-tier CDs mature
Investing in Startups
Everything begins as a startup, even companies like Google, Apple, McDonald's, Yahoo, and Facebook. The vast majority of startups fail – as many as 50% in fact. However, they don’t fail immediately – they fail within 5 years. And that means that there is still profit potential in startups and small businesses. In much the same vein as investing in companies, you could opt for an investment in business debt. The reason this is safer is that you get paid out before stockholders if the company tanks.
Mark Zuckerberg speaks at Startup School
When you decide to lend money to a peer, both the lender and the borrower enjoy benefits. These include higher returns for the lender and lower interest rates for the borrower. The reason being – there is no middleman. Lending sites like Lending Club require a minimum investment amount of just $25 and since there is diversification of lenders, you cannot lose your entire investment to a single debt defaulter.
These are often considered to be a viable investment opportunity, but savings accounts do not allow you to grow your savings in any meaningful way. The returns you can generate are low, somewhere in the region of 1% but there are no penalties for withdrawing your funds.
Putting Money into a 401k Account
401k accounts are terrific investment vehicles for retirement. There are many benefits to these accounts including the fact that they are tax deferred and you can invest upwards of $17,500 per year in them.
Investing in Treasury Notes
These are widely considered the world’s safest investments. By investing in U.S. Treasury Notes, you have the credibility of the U.S. government at your back. While returns on Treasury Notes are notoriously low, they are guaranteed. Investment timelines can be as much as 10 years and the minimum investments are $1,000 up to $5,000.
Commodities like Gold and Silver
Everyone knows that gold and silver are in high demand. Gold especially has enjoyed a boom period in recent years, but it still remains a risky proposition. When the stock market is thriving, the gold market suffers. This is because gold is typically viewed as a safe-haven investment. Even if the stock market is an anathema to you, you can still invest in gold by holding on to gold coins such as Krugerrands.
ETFs, Index Funds and Mutual Funds
These are all ideal for longer term investments. When you opt for these accounts, you assume a greater appetite for risk. Since you’re not picking individual stocks to invest in, your overall risk profile is limited. Fund managers actively take the lead with these funds so that you don’t have to worry. The annual fees are low in percentage terms, but you should always take into account the overall fee structures, expense ratios and the like. With ETFs you are also buying into multiple different investments from a fund. ETFs are not actively managed however, so account re-balancing is required.
Real Estate Investments
If the stock market scares you, real estate is an option available to you. It should be remembered that the 2008 housing bubble caused many real estate investors to think twice about jumping back into the market. While prices have not really recovered much since then, there is an opportunity to get into the market and add property to your portfolio. You can for example buy a rental property or you can buy shares in a REIT (real estate investment trust). Provided you have the time, money and know-how, buying real estate for the purposes of a rental property may be a good idea. Other options include crowdfunding and notes. While the former is a relatively new method of investing in real estate, it is fast gaining traction among investors.
How to Stay Out of Debt: Warren Buffett - Financial Future of American Youth (1999)
Remember that before you jump in, you should always consider your present situation. If you have debts (credit cards, loans, and the like) then you should pay off the higher debts first before investing elsewhere. The reason for this is that you will end up paying more on your credit cards than you would be generating from interest earned on invested money. Emergency savings are important in today’s times. With all the uncertainty about, it is wise to put money into an account to take care of those eventualities that arise, because they will. A general rule of thumb is that 3 – 6 months of emergency funding should be maintained. Now that you know how many investment opportunities are out there, you can confidently explore all these options and put your money where you feel most comfortable!