“Not only does [art] appreciate over time, but it’s a strong way to diversify,” said Blair Haden, registrar at Restoration Division, a company that restores art pieces. “If the stock market crashes, fine art can remain unaffected and even continue to rise in value.”

The art market has seen both peaks and valleys, but it consistently returns 7.6% to investors, according to one price index, and outperformed the stock market in 2018. According to a 2020 report by Art Basel and UBS, the art market is now worth $64.1 billion[1].

And there are plenty of ways to capitalize on this lucrative asset. You can purchase artwork, invest in art funds, or even use new services like Masterworks to invest in famous paintings. If you’re looking for an alternative to stocks and other traditional forms of investing, here’s what to know.

What Is Fine Art and Why Are People Investing in It?

Though you may think fine art only includes paintings by famous artists like Picasso or Van Gogh, it’s more than that. Fine art includes just about any creative object made primarily for enjoyment and artistic expression. Fine art also includes several categories beyond paintings and drawings.

Briana Brownell, CEO and founder of Pure Strategy Inc., invests in paintings, sculptures, photography, collectibles, and even fashion pieces. “For me, one of the most compelling things about art investing is you get to live with that piece of art in your life,” she said.

Art has been a popular way to invest for several decades, especially in times of economic uncertainty. For instance, Michael Wenner, vice president of marketing at Masterworks, said that during the coronavirus pandemic, people were looking for alternative investments to the stock market. “People are looking to keep a portion of wealth in something slightly safer that’s asset-backed,” he said.

This type of investing is best for people who truly enjoy art, but it’s also a good fit if you’re looking for ways to diversify your investment portfolio and balance your risk. And because the time horizon on profit is typically measured in years or decades, you should be in it for the long haul, at least 10 years.

4 Ways to Invest in Art

Some investors approach art as purely an investment strategy, while others are lifelong art lovers. Both investor types pursue profits, but some prefer looking at a sculpture instead of a stock certificate, Brownell said. Either way, you have a few options for investing in fine art.

1. Join Masterworks

Masterworks is a service that allows many investors to collectively own one piece of art. Because the minimum buy-in is low, this service has opened the door for retail investors who don’t have millions to spend.

Here’s how it works: Masterworks buys a piece of art, registers it as its own company with the Securities and Exchange Commission, and sells shares to individual investors. The minimum investment depends on your overall investment portfolio. For example, someone with $1 million in various investments would have a higher buy-in than someone starting out with $1,000.

When Masterworks sells the painting, each investor shares the profit or loss. The timeline for earning a profit is between three and seven years, with a target appreciation of 10% to 25%.

One of the benefits is that Masterworks cuts down on the work involved, Haden said. “They have experts in art doing the research behind what they offer, and you can have greater confidence in their estimates and returns.”

Masterworks says it focuses on “blue-chip” art, which is art produced by the top 100 artists whose work is reliably profitable. Blue-chip art has appreciated by 14.1% annually from 1995 to 2021.

“If you were to research a stock or bond, you would want to buy something that has a track record you can analyze,” said Wenner. “That’s why we do artists like Monet and Basquiat and Picasso. You can see how well they’ve done at auction over time and build a quantitative approach.”

But it’s also important to consider the drawbacks. You own just a small amount of the painting and have limited control over the investment. You can either wait until Masterworks sells the painting, which takes a few years, or sell your shares on the secondary market to turn a profit. And like most investments, the fee structure will cut into your profit margin.

An annual 1.5% management fee covers storage, transportation, and insurance, and Masterworks will keep 20% of any profit made on an artwork sale.

To date, Masterworks has sold 3 paintings with a net annualized gain of over 30% for each. This isn’t an indication of the overall performance and doesn’t guarantee future results. But it shows investors still can see attractive results despite the fee structure. 

Related: What Is Micro Investing and Is It Worth It?

2. Invest in an Art Fund

A mutual fund is similar to Masterworks, where each person in a group owns a little bit of the piece of art. In mid-2014, there were more than 70 art funds operating.

Mutual funds tend to be more exclusive in terms of starting price; minimum buy-in may start anywhere from $2,500 to upward of $1 million. You also pay a management fee of around 1% to 3%, and the fund will keep a percentage of profits made.

But art funds generally come with more control and greater return potential than traditional investing. Art investment fund Anthea said it returned 23.4% between 2013 and 2014, with its best investment earning a 404.3% return. The Fine Art Fund Group says it provided a 9% return before fees.

Aside from the high buy-in, there’s another major downside to this method: You typically don’t get to enjoy the art yourself. But at least one private fund, the Artemundi Global Fund, has found a workaround by allowing investors to take turns displaying the artwork in their homes.

3. Flip Art

Like homes or cars, you can purchase artwork in hopes of quickly reselling the piece for a profit, typically within 5 to 10 years.

Art flipping can be lucrative. In one impressive example, a Jean-Michel Basquiat painting was thrice sold at auction between 2005 and 2012, ultimately fetching $9 million — a 450% price increase.

Many art pieces resell for a higher price, but you’re not guaranteed a profit. Many investors lose money on potentially promising pieces. For example, paintings by Lucien Smith sold for around $390,000 in 2013. But prices on his work dropped to around $5,000 to $20,000 in later years.

The art community frowns on the practice of art flipping. It can result in artificial price spikes, which especially hurts young, up-and-coming artists. Additionally, when a piece of art enters the secondary market, the original artist usually doesn’t see any profit from sales.

4. Collect and Sell Art

When you buy artwork, you may choose to sell the pieces later on or pass them down to your children and other family members.

If you decide to sell, your earnings could fall in line with the 7.6% average return. A good place to sell is through a fine art auction house. However, they typically take around 5% to 25% of your sale price.

Before you buy a piece of art, whether it’s at an art gallery, art fair, or online, you can take some precautions to ensure a good investment. Haden recommends researching the artist, the art piece, and the art dealer. Once you own the art piece, take care of it to preserve the value and consider having it insured.

You also might need to invest in a restoration, which “revitalizes artwork, increases its longevity, stops degradation, and can increase the final sale price,” Haden said.

When you’re looking to sell the art, Haden advises to get an appraisal, verify the artist’s signature, and check open auction sale prices. Once you know the market value for an artist and any sales fees involved, you can plan how best to sell the piece.

Related: A Beginner’s Guide to Investing in the Stock Market

How to Invest in Art with Caution

Before investing in fine art, you should first make sure you’ve contributed enough to your other investment accounts, including retirement. Most people dedicate only a portion of their investment portfolio to art because it may not provide enough profits for a steady income.

You should also think about the types of art you want to invest in and how much you want to spend upfront.

“I started with making my own purchases and choosing pieces that were important to me or that I really liked,” said Brownell, who tracks the value of her collection about every five years. “I have pieces that I paid less than $1,000 for. They’ve increased a lot since then. But if you’re savvy enough, you can get in at the lower amount.”

Here are a few expert tips in turning a profit through art investing:

• Diversify your portfolio. Make sure art is only a small part of your portfolio. A financial adviser should help you develop an investment strategy.
• Be realistic. Art investing isn’t a get-rich-quick method. Rather, it’s a long-term investment.
• Do your research. You should regularly track artists, their artwork, and sales prices, and try to make objective decisions. For example, Haden advises that before investing in pieces from last year’s hottest artist, check how their art is selling now.
• Purchase from a living artist. Great artists who are deceased, like Picasso, have well-established reputations with prices to match. But if you find work by a young artist who shows promise, the work might start at a lower price point and increase over time, Brownell says.
• Consider donating your art. You may be able to get a tax deduction for donating pieces from your collection. Brownwell said, “In that case, the investment is about being able to offset some of your tax burden.”

Keeping this advice in mind can guide your art purchases, especially for people new to this type of investment.

Is It Risky to Invest in Fine Art?

Most investing comes with some form of risk, and art is no exception. The art market contracts periodically, just like stocks and bonds. It’s also hard to determine the true value of artwork because it partially depends on the artist’s reputation and the overall economy.

Additionally, art is non-liquid, meaning it’s difficult to quickly convert your investment to cash. If you want to sell it, you’ll need to get the artwork appraised, find an auction house willing to take on the sale, and hope someone buys the piece.

“You may end up having a lot of your money tied up in assets where it’s difficult to sell them when you want to,” Brownell says.

And like any physical asset, there’s always the risk of artwork being destroyed in an accident or depreciated through wear and tear.

For these reasons, it’s important to do your research, figure out how much you can invest, and discuss with an adviser before investing in this asset class. It can be a great path to enjoying your portfolio in a new way.

The post 4 Best Ways to Invest in Art (Even as a Beginner) appeared first on DollarSprout.

Some people start a dropshipping business, others create a blog. But many opt for a classic revenue stream: real estate investing.

If you want to know how to start investing in real estate, you’re not alone. There are over 22 million rental properties in the U.S. Over 16 million of those are owned by individual real estate investors, and the need for rental properties is predicted to keep rising.[1] [2]

But should you get into real estate investing? There are a lot of questions to answer before you make that decision.

Is Real Estate a Good Investment?

Real estate has traditionally been thought of as a good investment. Median U.S. home values are up 3.8% since 2018 compared to general inflation’s 2.3% increase._{[3] [4]} Real estate is also a “hedge” against inflation. You can increase rent prices every year while your mortgage stays the same.

For every advocate of real estate is a vocal critic who says it’s not worth the hassle and that you can get better returns elsewhere.

Ultimately, real estate is a good investment for people who enjoy it. If you love learning, treasure hunting for deals, analyzing properties, and working with a team of people, real estate might be a great investment strategy for you.

Even if you enjoy real estate, it may not be a good investment for you right now. If you’re not financially stable enough to afford a down payment, closing costs, and basic repairs in addition to your personal living expenses, you should wait.

There are plenty of investment options to grow wealth. Real estate is just one of them. If you’re at a place where you’re investing for retirement and you want to take your wealth-building to the next level then it’s worth learning how to start investing in real estate.

A Guide to Real Estate Investing for Beginners

It may take a lot of planning and studying, but if you follow certain steps, you can overcome the learning curve and start building your real estate portfolio.

Step 1: Start learning (and don’t stop)

Before you get on Zillow and start browsing foreclosures, know what to look for from other experienced investors. Mistakes in real estate can cost you tens of thousands of dollars or more.

You can avoid some of those losses by gleaning the wisdom of those who’ve gone before you. Read books on real estate investing, listen to podcasts, find a mentor, and start networking with other investors in your area.

 

 

 

 

 

 

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Step 2: Set a goal

Figure out what you want from real estate. Are you looking to earn extra money while keeping your full-time job? Do you want to make enough to retire early? Or do you want to build a business that employs people?

Write down long-term and short-term goals that you can control. Getting clear on your business and income goals will help you choose the right real estate investment strategy and keep you from making deals that could tie up too much of your time or money.

Step 3: Choose a real estate investing strategy

Single-family homes aren’t the only way for individual investors to get into real estate investing. Based on your income and time goals, choose a strategy that’s right for you.

Crowdfunding

Real estate crowdfunding is the most passive way to invest in real estate and a great way to start if you don’t have a lot of capital. Instead of asking one investor to lend a lot of money, crowdfunding allows large developers to raise capital through lots of smaller individual investments.

Companies like Fundrise and EquityMultiple allow individual investors to get started investing in real estate with as little as $500.

Related: Fundrise Review 2023: Features, Expected Returns, and FAQs

House hacking

House hacking is where you live in the property while renting out parts of it, essentially living for free or very little. Because you’re occupying the property you don’t need to put a 20% down payment on it, so it’s easier to get started.

There are several ways to house hack including renting out rooms in your house, buying a multifamily property and renting the other units, or renting space or rooms on Airbnb.

Flipping

House flipping is a fast-paced strategy. Investors buy a property at a discounted price, fix it up, and sell it as quickly as possible. While it can be a good way to make a profit, you need more money upfront to be successful.

Wholesaling

With this method, an individual, or wholesaler, finds a deal and puts a contract on the property with the seller. They then find a buyer for the property, usually another real estate investor, and assign the contract to the buyer for a higher price.

The buyer pays the wholesaler and the wholesaler pays the seller, keeping the difference. This is kind of like a finders fee.

There are no renovations, additions, or even money invested in the property. The profit is lower, but the opportunity is high if you’re good at finding deals. It requires a lot of patience, researching, and building a network of investors who want deals.

Buy & hold: Single-Family

In this strategy, the investor buys a single-family property, rents it out, and holds on to it for a long time. You can fix it up with less expensive features than if you’re flipping, but you won’t get a large cash return as quickly.

Many people get into this strategy of real estate investing by renting out their primary residence after they move. If you’re not ready to invest now but know you want to in the future, treat your next home purchase like an investment.

Lisa Harrison was glad she turned her home into an investment property.

“It reduces anxiety because you don’t have to go through the process of finding and bidding on a property,” she said. “Also, you’ll likely already have a mortgage on it so you get to skip that hassle, too. But for me, the best thing about turning a current home into a rental is that you’re familiar and comfortable with the property. You know all the quirks and how to deal with them.”

Buy & hold: Multi-Family

Multi-family properties have two or more separate living units in one building. You can get a conventional mortgage for properties up to four units. You can also house hack by living in one unit and renting out the others.

Buy & hold: Vacation Rentals

If you want to know how to get into real estate that doesn’t involve flipping or managing long-term tenants, vacation rentals could be a good option for you. Airbnb has made the vacation rental business easier than ever to get into.

Related: How to Make Money as an Airbnb Host

 

 

 

 

 

 

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Step 4: Decide how much money you need

Every strategy of real estate investing has its own starting price point. Wholesaling and crowdfunding require almost no upfront capital while flipping in some popular markets might require 100% cash transactions.

Real estate investor Dustin Heiner says the amazing thing about investing in rental properties is that you don’t need a lot of money to get started, but you do need some. For buy-and-hold properties, he recommends $10,000 to $15,000 minimum.

“There are ways to invest with no money down, but those are ridiculously hard, and I suggest staying away from those,” Heiner said. “By starting with $15,000, you can have enough for a down payment on a $60,000 house that rents for $850 a month. After all your expenses, you can pocket $300 or more in passive income from this one property.”

Real estate prices are location-dependent. You may want to save more or less than $15,000 depending on the type of investing you choose and the prices of properties in your area.

Step 5: Make a plan

Now that you’ve chosen a strategy and have a savings goal, it’s time to make a plan for getting there. Creating a business plan before you buy your first house will get you into the right mindset for investing. Your business plan should include:

Don’t let the term “business plan” hold you back. It doesn’t have to be long or complicated. One page handwritten will do. You can find more information on all the elements of a good real estate business plan by reading books and asking the real estate investors in your network.

Set a goal for how much money you’ll save each month and a deadline for when you plan to purchase your first property. This will help create accountability and allow you to work backwards from your goal date to determine what steps to focus on at what point in time.

Step 6: Start saving

There are plenty of ways to save up for your first rental property. You can cut expenses and save a portion of your income, get a side hustle, raise funds, or sell your stuff.

If you want to speed up your journey, you can partner with another investor and split the costs. If you have the time to find and close deals and do more of the groundwork, consider partnering with someone who already has money to invest but maybe doesn’t have or want to spend the time to do the work.

Whatever the mix, a partnership can save you time, money, and open up the door to more financing opportunities. If you go this route, hire a neutral attorney to legally protect yourself and your business.

Step 7: Analyze locations

There’s no perfect location to buy properties in. You can make deals work in expensive markets as easily as you could fail in affordable ones. The key is to find a location strategy that works for you.

As a real estate investor, you have two options when it comes to location. Buying properties close to home or long distance. Both have their pros and cons so it comes down to your preferences.

Do you like driving around, hunting for deals and want to be near your property? Or do you have a busy job and prefer to stay behind the computer and let others handle maintenance? Answering these questions will help you choose the right location.

Once you’ve decided to go local or long distance, analyze neighborhoods, school districts, and street views of the location you’re interested in. You’ll also want to make sure there’s job growth in the area. You can use data from the U.S. Bureau of Labor Statistics to view unemployment rates and regional job trends.

Related: 19 Passive Income Ideas to Build Wealth Around the Clock

Step 8: Analyze deals

When a property meets your location standards, it’s time to determine if it’s a good deal. There are a few rules you can run the property through to determine if the property makes sense and the maximum price you can buy it for.

1% and 2% rules: Monthly rent should be approximately one or two percent of the purchase price respectively.

50% rule: You can expect that 50% of your after-mortgage income will go to property-related expenses.

70% rule: You should only pay 70% of what the after-repair value is. Used primarily by house flippers.

Remember that there are plenty of “rules of thumb” to determine a good deal, but they’re more guidelines to rule out bad properties. You also have to take into account things like property taxes that vary from state to state.

“Every property and city/town are different,” said Vicki Cook, a real estate investor with 26 years of property buying and landlord experience. “You have to do your homework and not just rely on a property meeting certain rules.”

Step 9: Build a team

New investors often try to go it alone when starting their business, but if you want to know how to invest in real estate successfully, experienced investors say it takes a village to succeed. Here are some of the people who should be on your team:

Also, build a team of fellow investors. Networking with other investors can help you learn the business of real estate. You’ll pick up tips from others who’ve already done what you want to do, and you may find partners to provide funding, alert you to potential deals, and hold you accountable to your goals.

“Real estate investing is a team sport,” Andrew Herrig said. “Some of the best deals I’ve ever done have come through relationships and working cooperatively with so-called ‘competitors.’”

 

 

 

 

 

 

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Step 10: Buy your first deal

After reading books, listening to podcasts, talking with a mentor, and analyzing lots of locations and deals, the time will come for you to buy your first investment property. And you have to be ready to do it fast.

“You have to already know the intention of the property, your financial capabilities, your funding source, and how you are going to analyze a property,” said real estate investor Cody Laughlin. “The big money is made in being patient and analyzing a lot of deals through the same criteria and objectives until you find a great opportunity.”

You’ll have to be prepared to negotiate with the seller, a home inspection, and appraisal. Then you’ll choose your financing option. A conventional mortgage is the most popular route, but you can also get a cash-out refinancing of your current home, a hard money loan, or a portfolio loan.

Step 11: Manage your property

Now the real work begins. If you’re flipping the house. you’ll need to work quickly to increase your profit. This might include hiring a contractor to oversee work.

If you’re planning on turning it into a rental property, then you’ll need to figure out how you’ll manage it long term. If it’s nearby, you can choose to self-manage. However, if the property is far away or you just don’t have the time, you may want to consider hiring a property manager.

Even once you purchase your property it’s still important to keep saving for it.

“Each property is different. Some require higher maintenance reserves or some have extremely high property taxes,” said Kyle Kroeger. “Mistaking one line item in your projection can completely erode your returns. If you don’t use a financial model for your properties, you are simply investing blind.”

Step 12: Create systems for scale

Once you’re ready to take a more hands-off approach, hire people and create systems for your team to follow. This is where you might consider hiring a property manager even if your property is local.

“For someone who is committed to frugality, that might not sound like good advice initially,” Wesley LeFebvre said. “However, I’ve been using the same one for 3.5 years, and it is by far the best money I have ever spent. I feel like I’ve saved more in money, time, and headaches during that time than I would have trying to do it all myself.”

You’ll also want to create a marketing strategy to acquire more deals. Networking is the most powerful way to market yourself and your business, but traditional marketing like direct mail is still effective.

You Can Only Plan So Much

The beautiful thing about real estate is that it’s accessible to almost anyone who has a passion for it. You don’t need a ton of money, and you can find creative ways to finance and manage your properties.

But remember that there’s volatility and unpredictability in every strategy and location. Tenants can skip out on rent, buyers can be hard to find, and hidden structural problems can arise. These are some of the risks you take when investing in real estate.

You can only plan for so much. Once you know all the steps and have accepted the risks, it’s time to stop researching and start making moves. The most effective things you can do are build a strong network with other real estate investors and cash reserves to weather the storms. They won’t fix all your problems, but they’ll make the process much easier.

The post How to Start Real Estate Investing (Beginner Guide) appeared first on DollarSprout.

Peer-to-peer lending relies on a crowdsourcing model where other people can fund your loan. Unlike GoFundMe, these aren’t people you know. These are third-party investors.

Peer-to-peer funding attracts two different types of people: borrowers who need money and investors who want to make money funding other people’s loans.

It’s a fast-growing model. In 2014, peer-to-peer lending platforms issued $5.5 billion in loans, and PricewaterhouseCoopers predicts that peer-to-peer lending will grow to a $150 billion industry by 2025._[1]

Peer-to-peer lending offers a lot of benefit whether you’re looking to borrow or make money by investing in p2p loans.

What is Peer-to-Peer Lending?

Peer-to-peer lending relies on websites that serve as a marketplace to connect individual borrowers with lenders. The most popular ones are LendingClub, Prosper, and Upstart.

Some people think that peer-to-peer loans remove the middle man, i.e. the bank, from the equation. That’s not entirely true, however. A bank still funds and issues the loan. For example, WebBank, a Salt Lake City-based online bank, often funds loans from peer-to-peer lenders.

The difference with peer-to-peer lending is that individual investors buy a portion of that debt in the form of a note. Investors assume all the risk if a borrower defaults on the loan, but they get rewarded with interest if a loan is paid off. It’s a roundabout way of funding a loan.

For borrowers, using peer-to-peer lending may be cheaper than working with a bank or other lender. If you have a poor credit score, you may even be approved for a loan when other lenders won’t give you money, although you could end up paying high interest rates.

How Does Peer-to-Peer Lending Work?

A borrower first applies for a loan through a peer-to-peer lending site. If they’re approved, the website will then create a listing that individual investors can see, including the following details:

• The loan amount
• The loan’s purpose
• The borrower’s financial details, such as credit score and income

All identifying information is kept confidential. Investors can’t see your name, Social Security Number, address, race, or any other personal information.

They see what they need to make a decision on whether to back your loan or not. In some cases, investors may be able to sort loans by location, but that’s about as specific as it gets.

Your best friend could log in and fund your loan and they’d never know unless you told them you were applying for a loan. If you’re a borrower, you’ll never see any details about who’s funding your loan.

Websites usually allow listings to stay posted for a few weeks. During this time, investors can choose to fund your loan in increments as small as $25 on some platforms. They can also choose to fund the whole amount.

This is an attractive proposition for investors because this spreads their risk out so they’re not putting all their money into one loan.

Once a loan is fully funded, it will be dispersed to the borrower and paid back just like any other loan.

One of the downsides with peer-to-peer lending is that it’s possible your loan doesn’t get funded. If that’s the case, the website will usually offer you a smaller loan than you’ve requested, but you may reject that offer. This is a rare possibility, but it does happen.

Types of Peer-to-Peer Loans

Most peer-to-peer loans are issued as unsecured personal loans. You can generally use these for a wide range of purposes including:

• Vacations
• Weddings
• Debt consolidation
• Medical or veterinary care
• Home renovations and repairs
• Informal education, such as coding boot camps

Most personal loans don’t allow you to use the funds to pay for college costs, investments, or illegal activities.

Depending on the platform, you may also be able to get other types of loans, including:

• Auto loans
• Business loans
• Real estate loans for specific purposes, such as landlord renovations or bridge loans

6 Peer-to-Peer Lending Platforms to Look Into

There are many popular platforms where you can find P2P loans, but each has its own rates and rules.

1. Prosper

Prosper is the first peer-to-peer lender and began in 2005. Since then, it’s issued $15 billion in loans.

Prosper borrowers

Prosper offers personal loans for many purposes such as debt consolidation, engagement rings, and adoption. It also offers short-term real estate, auto, and small business loans. It will even be offering HELOCs soon.

• Amounts: $2,000-$40,000
• Term length: 3 or 5 years
• APRs: 7.95-35.99%
• Origination fee: 2.41-5%

Disclosure: For example, a three-year $10,000 personal loan would have an interest rate of 11.74% and a 5.00% origination fee for an annual percentage rate (APR) of 15.34% APR. You would receive $9,500 and make 36 scheduled monthly payments of $330.9. A five-year $10,000 personal loan would have an interest rate of 11.99% and a 5.00% origination fee with a 14.27% APR. You would receive $9,500 and make 60 scheduled monthly payments of $222.39. Origination fees vary between 2.41%-5%. Personal loan APRs through Prosper range from 7.95% to 35.99%, with the lowest rates for the most creditworthy borrowers.

Eligibility for personal loans up to $40,000 depends on the information provided by the applicant in the application form. Eligibility for personal loans is not guaranteed and requires that a sufficient number of investors commit funds to your account and that you meet credit and other conditions. Refer to Borrower Registration Agreement and all terms and conditions for details. All personal loans made by WebBank, Member FDIC.

Prosper investors

It’s easy to start investing in notes with Prosper because you only need $25 to buy a note.

You can choose each note yourself with filters or use an auto-investing feature with set parameters. Prosper charges a fee of 1% of the outstanding principal balance.

2. LendingClub

LendingClub is one of the largest and most well-known peer-to-peer lending platforms. It’s been around since 2007 and has issued over $47 billion in loans since then.

LendingClub borrowers

LendingClub’s biggest business is its personal loans, but it also offers auto refinancing, business loans, and medical and dental loans.

• Amounts: $1,000-$4,000
• Term lengths: 3 or 5 years
• APRs: 6.95-35.89%
• Origination fee: 1.00-6.00%

LendingClub investors

To invest in notes with LendingClub, you’ll need to deposit at least $1,000 into your investing account. You can select individual notes by filtering for credit risk, location, term length, loan purpose, or other features.

Each note is for $25, and you can choose each individual note yourself or use an automated investing tool to fund notes according to preset directives, such as risk level or term length.

Payments from your notes will be deposited back into your investing account. From there, you can choose to fund more notes or withdraw the money back into your bank account. LendingClub charges a fee of 1% of each payment received.

3. PeerStreet

PeerStreet is a new kind of peer-to-peer lending platform. It works with other lenders to let consumers invest in short-term real estate loans, like the kind that real estate developers and landlords use.

It’s not as much a platform for borrowers, so you can’t go here if you need your own personal loan.

PeerStreet investors

The advantage of investing in real estate loans through PeerStreet is that you may earn higher returns. PeerStreet advertises average returns of 6-9%, whereas personal loan lenders like LendingClub report returns around 4-7%.

PeerStreet only allows accredited investors on the platform, and the minimum investment amount is $1,000. The company charges fees of 0.25-1%.

4. Upstart

Upstart is a peer-to-peer lender founded by ex-Google employees. Its features offer a unique selling point. The platform uses artificial intelligence and machine learning algorithms to automatically make a lending decision for most people.

This unique approval process uses a wider range of factors and results in lower default rates than most other lenders.

So far the platform has issued over $3.8 billion in loans, and it has plans for aggressive growth.

Upstart borrowers

Upstart offers personal loans, business loans, student loans, and student loan refinancing. It may be a good platform to choose if your credit score isn’t the greatest, but you have other redeeming qualities such as your education and job experience.

You’ll still need a credit score of at least 620 or 580 if you live in California. If you don’t have a credit score, Upstart may still be willing to work with you.

• Amounts: $1,000-$50,000
• Term lengths: 3 or 5 years
• APRs: 4.68-35.99%
• Origination fee: Not disclosed

Upstart investors

You’ll need to be an accredited investor to use Upstart’s platform. If you’re eligible, Upstart has much lower minimums than other peer-to-peer lending platforms. You can get started with as little as $100.

Once your account is funded, you’ll set up rules for automated investing in notes. This means you won’t be able to individually pick which loans to fund like you can with other platforms. Upstart also charges slightly lower fees, just 0.5% of the outstanding loan balance.

5. Peerform

Peerform’s website seems a bit dated compared to its flashier competitors, but it’s still a decent option for borrowers and investors. This company offers personal, auto, business, and medical loans. Peerform has been around since 2010.

Peerform borrowers

You’ll need a credit score of at least 600 to be approved for a loan. There’s not much that differentiates Peerform from other lending platforms.

However, its maximum APR is slightly lower than the other lenders. If you think you won’t qualify for a low rate, it could be worthwhile to apply with Peerform first. It’s still worth shopping around and checking your rate with multiple lenders.

• Amounts: $4,000-$25,000
• Term lengths: 3 or 5 years
• APRs: 5.99-29.99%
• Origination fee: 1.00-5.00%

Peerform investors

Peerform isn’t as forthcoming with details about how investing works on its platform compared to other peer-to-peer lenders. It doesn’t disclose what fees are involved or what the minimum investment is.

You need to be an accredited investor to invest through Peerform.

6. Funding Circle

Funding Circle only offers business loans. There’s a huge market for business loans since business owners applying for a traditional bank loan face tedious application requirements and high rejection rates.

This platform offers business loans in several countries and has been around since 2010. It’s issued $10.2 billion to 72,000 small businesses.

Funding Circle borrowers

Funding Circle offers business loans to different types of businesses with just a few exceptions like weapons manufacturers and marijuana dispensaries.

You can use the funds for almost anything as long as it’s business-related, such as buying inventory or expanding to a new location. These loans are secured with your business’s assets and a personal guarantee.

• Amounts: $25,000-$500,000
• Term length: 6 months-5 years
• APRs: 4.99-22.99%
• Origination fee: 3.49-6.99%

Funding Circle investors

Funding Circle requires a much larger investment than other peer-to-peer lenders. You’ll need to be an accredited investor, and have committed at least $25,000 to Funding Circle to open your account.

The minimum investment is $500 per note in loans that you choose or you can select notes through an automated investing tool. Funding Circle charges a fee of 1% of the outstanding loan balance.

P2P Lending from an Investor’s Perspective

Anyone can become an investor on a peer-to-peer lending platform as long as you pass certain criteria, such as having a certain annual income or net worth. These requirements are determined on a state-by-state basis.

In most states, you’ll need to have both a net worth and an annual income of at least $80,000, or $85,000 in California. If you don’t have that kind of income, you may also qualify if you have a net worth of at least $280,000.

Some peer-to-peer lending platforms also require you to be an accredited investor. This is an SEC-defined status, and to get it you’ll need to have an annual income of at least $200,000 for the past two years, need to have that income or more for this year, or a net worth of at least $1 million.

Peer-to-peer lending offers an attractive way to diversify your portfolio. You can invest in individual notes with as little as $25 in most cases.

Peer-to-peer lending platforms aren’t meant to be your sole investment vehicle, but they can offer you a way to potentially earn big rewards outside of investing in the stock market.

Those rewards vary with the types and number of loans you fund. The riskier the loan, the higher the returns you’ll get because that borrower will, in turn, be charged higher rates. However, the riskier a borrower is, the greater the chance that they’ll default and pass that loss on to you.

That’s why investing in more notes, including notes of varying risk profiles, can lower your own risk. According to LendingClub, investors who invest in fewer than 40 notes generally see returns anywhere between -10% and +13%. Investors who fund 1,000 or more notes, on the other hand, typically see annual net returns between +3.85% and +6.08%.

P2P Lending from a Borrower’s Perspective

The biggest advantage of taking out a P2P loan is that you may get cheaper rates than with other lenders. That’s because some peer-to-peer lending platforms take into account other factors besides your credit score when deciding to approve your loan.

Your exact rates and terms will still depend on your credit score and income. Peer-to-peer loans may not be the cheapest option in all cases. You might find cheaper rates with another online lender or with your local bank or credit union, so it’s important to shop around.

For many people, peer-to-peer lending offers a cheaper option. And in most cases, it’s certainly much cheaper than paying interest on a credit card or a payday loan.

One of the downsides of a peer-to-peer loan is that it can take longer to get your money compared with other lenders. That’s because it takes time to fund your loan, and once funded, it can also take a few days to show up in your bank account. There’s also a remote possibility that your loan won’t be funded at all or will be funded with a smaller amount than you’ve requested.

Related: 4 Reasons You Should Never Lend Money to Friends or Family

Is Peer-to-Peer Lending a Good Idea?

Whether peer-to-peer lending is a good idea for you mostly depends on your own finances and what other options are available.

As a borrower, you may find that you can get a better offer with peer-to-peer lending. However, you should still compare traditional loan offers before making a decision. For investors, peer-to-peer lending can offer a way to diversify your portfolio, but you’ll need to be careful about how you invest.

Peer-to-peer lending is a tool like any other financial product. Consider peer-to-peer lending in relation to other lending or investing options available to you in order to determine whether it’s the right decision for your financial situation.

The post Peer-to-Peer Lending: The Ultimate Guide for Borrowers and Investors appeared first on DollarSprout.

You’re caught up on bills, your fridge is stocked for the first time in a while, and you find yourself with an extra $100 left over at the end of the month. It feels good to finally get ahead, even if it’s just a little bit.

But now it’s time to turn a small win into a big win.

Instead of spending what’s left on random stuff, you’ve decided you want to use this $100 for something more meaningful.

You want to invest it.

There are lots of ways to invest small amounts of money, but not all opportunities are created equal.

Here are some of the best ways to invest your first $100.

12 Ways to Invest Your First $100

This list is not going to be a list of hot stocks you should buy. That’s just a glorified form of gambling that you shouldn’t get caught up in.

Instead, these are wise and level-headed things to consider doing with your money.

1. Start investing with an app

If you are set on getting started with investing in the stock market, there are many cheap or even free options to get your feet wet with. Even though apps make it easy to get your money in the market, there are still some basics you need to understand.

Only invest what you can afford to lose. The value of most investments goes up and down every day, so don’t make the mistake of investing money that you need for paying your bills.

Invest for the long term (5+ years, minimum). The daily fluctuations of the market can take an emotional toll on anyone who has money riding on it, which is why it’s important to tune out the noise. Over the long term, the stock market tends to go up. In the short term, it’s anybody’s guess as to what it will do.

Make a habit of regularly depositing and investing. Everything comes back to your habits. Your first $100 might not make a huge difference to your long term returns, but if you deposit $100 a month for a year, you now have $1,200 +/- your investment performance. Most apps allow you to set up automatic recurring deposits; take advantage of it.

If you are a complete beginner to investing and want to dive deeper, check out our how-to guide for investing.

2. Pay off debt

Paying off debt is an immediate way to capture “returns”, but it’s often the last thing people think about when deciding how they want to invest.

In reality, paying off debt is one of the smartest moves you can make with your money. Here’s how the math works out:

This is why it’s almost always better to target high-interest debt before you start investing money into the stock market.

“Credit cards are the worst investment that you can make,” is the message billionaire Shark Tank investor Mark Cuban wants people to understand. “The money I save on interest by not having debt is better than any returns I could possibly get by investing that money in the stock market.”

I thought I would be a stock market genius; until I wasn’t. I should have paid off my credit cards every 30 days.

Mark Cuban, Shark Tank investor

3. Buy $100 worth of non-fiction books

Because of the fast paced world that we now live in, it feels like books have taken the backseat in most peoples’ lives. Attention spans are getting shorter and shorter and many people simply have no interest in reading something longer than a Facebook status or a tweet anymore (and even this blog post is stretching it).

If you want to break away from the majority, pick up a book.

Books offer some of the highest return on investment (ROI) out of almost anything you can buy. Exposure to new ideas can change your life.

Take autobiographies written by entrepreneurs, for example:

A successful entrepreneur that has already built a thriving business, taken their own lumps on the way to the top, and has a perspective that most people do not. And when someone like that decides to sit down and share their story and condense their knowledge into one book that you can buy for fewer than $20, you better take advantage of that opportunity.

Consider this: If you find even one thing in a book that can improve your life, chances are good that the price tag of the book becomes a drop in the bucket compared to the changes in your life that a piece of knowledge or inspiration might bring.

For example:

$100 Business/Entrepreneurship Bundle

• Onward — by Howard Schultz (Starbucks CEO)
• 10X Rule — by Grant Cardone
• Shoe Dog — by Phil Knight (Started Nike)
• Tim Cook — by Leander Kahney
• Radical Candor — by Kim Scott
• Hooked — by Nir Ehal

$100 Personal Finance Bundle

• I Will Teach You to Be Rich — by Ramit Sethi
• You Need a Budget — by Jesse Mecham
• The Intelligent Investor — by Benjamin Graham
• Get Money — by Kristin Wong
• Broke Millennial — by Erin Lowry

4. Invest $100 in an online course

If you can’t bring yourself to sit down for 30 minutes a day and read a book, taking an online course is probably the next best thing you can do for your own growth.

Being taught skills that you want — from experts that have those skills — can have a very high ROI; especially when you consider how inexpensive online courses are compared to traditional college classes.

Unsure of where to start? I recently signed up for a site called MasterClass; an up-and-coming online course platform has been coined by some as being the “Netflix of self-education.” MasterClass has dozens of courses from world-renowned experts in a variety of specialties. The video production quality of the courses is impressive; you won’t be bored in these classes.

My favorite class so far has been “The Art of Negotiation” by Chriss Voss, a former FBI hostage negotiator (see trailer below). I don’t plan on freeing hostages anytime soon, but there are many practical applications from the teachings in Chris’s course.

Other courses that made MasterClass a great investment:

• Business Leadership by Howard Shultz (former Starbucks CEO)
• Self Made Entrepreneurship by Sara Blakey (founder of Spanx)
• Business Strategy and Leadership by Bob Iger (Disney CEO)
• The Art of Magic by Penn and Teller

5. Open an IRA

Most young people don’t want to think about the day when they aren’t “young” anymore. Nonetheless, saving for retirement is an important part of life. The biggest mistake that most people make when it comes to saving for retirement is not starting sooner. It’s normal to want to wait until you are “better off” before you start putting money away for retirement. It’s up to you to fight that urge to wait and instead just start saving now.

Individual Retirement Accounts, or IRAs, come with special tax advantages that are meant to encourage you to regularly contribute. Opening an IRA is simple, and most brokerages allow new account holders to start with much fewer than $100.

6. Build up your emergency cash reserves

If you are one of the 74% of Americans living paycheck to paycheck, building an emergency stockpile of cash should be a top priority. Unexpected things happen all the time, and even a small hiccup can throw your budget into a nosedive if you don’t have an emergency fund.

Having an emergency fund with 3-6 months of living expenses in it is a good goal to have, but don’t let that stop you from starting small.

When something does inevitably come up that you didn’t expect, having an extra cash buffer is much better than relying on credit cards and carrying a balance.

Emergency funds help make some situations less stressful. Some examples:

• A global pandemic
• A sudden job loss
• Car repairs
• Vet bills
• An unexpected tax bill
• Travel expenses for a funeral
• Emergency home repairs

7. Start a business

A common myth that pervades our mainstream social dialogue is that you need a lot of money to start a business. Now, more than ever, that is just not true.

The price of entry has been lowered immensely because of the internet. There is nothing stopping someone from buying a domain name and hosting today for fewer than $10. DollarSprout.com — the site you are on right now — is a business that was started on a shoestring budget. What started out as a (very) small business has grown into a viable long-term business that employs a handful of people.

The one drawback to the price of entry being lower today than ever before is that the level of competition is at an all time high. Anyone can start; which means you are competing with a lot of people. Don’t let that deter you; let it motivate you.

Here are some businesses you can start with fewer than $100:

• Blog (like DollarSprout)
• Virtual assistant
• Freelance writer, editor, or proofreader
• Dropshipping business
• Copywriting

For a deeper list of opportunities, check out our online business ideas post or our post on small-scale business ideas.

8. Have some fun with flipping used stuff

Buying something for cheap (or even getting it for free) and then flipping it for a profit is not just a thrill, but it’s a great way to get experience with negotiating, business, and sales.

If you have an extra $100 laying around and you want a true entrepreneurial challenge, hit up your local thrift store or find some garage sales in your town. If you find a good deal on something that you know is underpriced, jump on it.

For people interested in flipping, it’s important to have an end goal in mind. What do you hope to accomplish by flipping? Going all in without a clear goal is probably not the best use of your time since you are essentially starting from scratch every time you go out looking for deals. You aren’t really “building” anything you have equity in — it’s more just a hobby.

Possible goals for flipping:

• Turn $100 into $1,000 and use profits to start a new business
• Complete 10 successful flips
• Experiment with different negotiation techniques and get comfortable with making a deal

9. Take someone you look up to out to lunch

Success in life often comes down to the connections we make and the relationships we build. Relationships don’t happen by accident — you get what you put in.

If there is someone you look up to, whether it’s a business person, real estate investor, church leader, a role-model parent, or anything in between, reach out to them. You don’t need to try to “get anything” out of the lunch, per se. This is all about building a relationship. If you treat people well, good things tend to happen because of it.

10. Invest in your marriage or relationship

Life is too short to only focus on how much money you can make from every transaction. Sometimes the returns we get from our investments have nothing to do with money.

You shouldn’t do this every time, but if you have some extra cash on hand, consider using it to do something out of the ordinary for your partner. It could be a date night, a daytime road trip, getting them that book they’ve been eyeing, or anything else. The most important thing is to make sure that it’s something meaningful to them (and not just to you!).

Don’t neglect your long term financial goals, but also don’t beat yourself up over living a little bit. Money is a tool meant to make our lives better, not stress us out.

11. Join a gym

Rising healthcare costs are a very real thing facing many Americans, and unfortunately they’re not showing signs of slowing down anytime soon. Many health issues are beyond our control, but the one variable we can control is how well we take care of our bodies.

Some of the most prevalent health problems facing our population are self-induced. Heart disease, Type 2 diabetes, stroke, and many other problems are believed to be more common in sedentary people than in people who regularly exercise.

In fact, according to a recent study from The Lancet, “physical inactivity is responsible for a substantial economic burden.”_[1] The study estimates that the total economic cost of the doctor visits, lost time from work, insurance claims, and other costs is almost $28 billion in the United States each year.

On average, people who exercise regularly incur fewer healthcare expenses.

Invest in your health and your wallet by joining a gym, if you haven’t already. It’s worth every penny.

12. Give your resume a makeover

The biggest pay raises that people usually get don’t come from internal promotions with the same company. Most of the time the biggest jumps in pay happen when you get a new job at a different employer.

Since your day job most likely has the biggest impact on your overall income, it’s important to get everything you can out of it, salary wise. If you are thinking about re-entering the job market, or even asking for a raise at your current employer, you need to have a top notch resume.

A well-done resume makeover can turn it from bland to brilliant. The contents of your resume are one thing, but the delivery and presentation are just as important for helping you stand out to a hiring manager. If you don’t have an eye for design, sites like MyPerfectResume have dozens of expertly-designed templates. They even walk you through the process of building a resume step by step and provide suggestions that fit your work experience, all for fewer than $3.

Another option is to hire an expert to go over your resume with you and help you identify areas where you can improve. If a $100 investment here can lead to a new job that pays $5,000 more per year, that is a 50X return on your investment.

Don’t Make These Mistakes with Your First $100

As you do your research and decide how to invest $100, you will likely come across a few ideas that you should stay far away from.

Invest in penny stocks. Penny stocks are usually penny stocks for a reason. Don’t waste your time.

Buy into an MLM. Instead of getting sucked into a multi-level marketing scheme where you will most likely lose money (and friendships), find another business to start where you have more control over your product and sales strategy.

Sports betting. No matter how well you think you know your sports teams, the sports betting game is always rigged against you over the long run. The sports betting industry raked in nearly $1.4 billion in revenue (on over $20 billion in bets). Don’t add your hard earned money to their bottom line.

The Power of Just $100 – And Starting Now

“What’s the point of investing if I only have $100? Any amount I make from it will be so small that it’s not even worth my time.” 

This is one of the biggest misconceptions people have about investing. That it’s only worthwhile if you are able to put down a lot of money at once. That couldn’t be further from the truth!

The point of investing $100 isn’t to turn that $100 into $1,000,000; it’s about taking the first step toward changing your financial life — forever. If you can invest $100 once, you can do it again, again, and again. And that is where the magic happens.

Investing is not a “one and done” affair.

It’s a habit that you build one day, one week, one month at a time.

And the sooner you start, the better; even if it’s small.

The post How to Start Investing with $100 appeared first on DollarSprout.

Here’s what I’ve seen – just this morning – as I’m writing this:

• “Stocks are [UP or DOWN] on [FEARS or HOPE] of [INSERT EVENT].” Example: “Stocks down on fear that the housing bubble may be ready to burst.”
• “Hedge funds pull in record profits once again.”
• “Meet this 23 year old who got rich on [INSERT CRYPTO]”
• “Inside the wild world of day trading meme stocks”

Stories are what captivates us. The financial media knows this well and uses it to keep us glued to the screen. Unless you’re already plugged into the investing world, these types of headlines tend to alienate those of us on the outside.

To the casual observer, it looks like investing is something reserved for rich old men or trust fund babies with lots of money to burn. Or “geniuses” who sit in front of 7 different computer monitors and watch the lines on stock graphs move all day.

The average investor, though, looks nothing like these people. They are remarkably… normal. They are your coworkers, your neighbors, the person standing in line with you at Starbucks.

The average investor isn’t watching the stock market everyday, and they’re no smarter than me or you. They just put a little bit of money into the market when they can, then they go about their lives as normal.

And over years and decades, they slowly accumulate wealth. Often life-changing wealth.

That’s how most people do it, but you would never know that from watching CNBC or Fox Business.

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The Best Micro Investing Apps for Millennials

There are several platforms that allow you to become a micro investor, but here are some of the best investing apps available.

1. Acorns

Acorns is probably the most well-known micro investing app. It’s an especially well-designed platform that almost anyone can figure out how to use. If you are truly starting from scratch, Acorns is a good place to start because it assumes you know nothing about investing. You can start investing with Acorns for just a $5 minimum deposit.

How it works: Acorns will recommend a portfolio for you based on your answers to a questionnaire about your financial goals. It uses a selection of low-cost exchange-traded funds (ETFs) rather than individual stocks and bonds to create your portfolio.

For an additional fee, you can sign up for Acorns Personal which allows you to open an Individual Retirement Account (IRA). You’ll also have access to an Acorns checking account syncs up to your investment accounts.

Unique features: Acorns allows automatic and manual deposits, but you can also use a “round-up” feature that rounds your purchases up to the nearest dollar and deposits the difference into your investing account.

If you link up a debit or credit card with Acorns, you’ll receive access to its Found Money partners. This will offer you cash back into your investing account for shopping at certain retailers, such as Lyft and Expedia.

Costs: Acorns charges the following monthly fees for its packages:

• Acorns Lite: $1 per month
• Acorns Personal: $3 per month
• Acorns Family: $5 per month

Related: Acorns Review

2. Betterment

Betterment is one of the original robo advisors. Although it does offer an app, most people use its website.

How it works: When you set up your account, Betterment will ask you a series of questions about which types of accounts you want to open, such as IRAs or personal investment accounts. It’ll also ask about your goals and risk tolerance. From there, it’ll handpick a portfolio composed of low-cost ETFs and manage it for you.

All you have to do is add money. You can do that whenever you want or you can set up automatic deposits. Betterment has no investment minimums, so you can open an account today and fund it whenever you have the money — even if it’s only a penny.

Unique features: Betterment may not be as flashy as some of its micro investing competitors, but it does offer a more holistic way to invest. You can rely on Betterment for all of your investing needs. Betterment is also backed by solid investing techniques such as tax-loss harvesting to save you even more money.

Costs: Betterment charges a 0.25% annual management fee for its main investment service. If you want to upgrade to the Premium plan so you can contact a live CFP® for advice on your non-Betterment retirement accounts such as your workplace 401(k), you’ll pay a 0.40% annual fee. For Premium, you’ll need at least a $100k balance.

3. Robinhood

Robinhood’s goal is to make investing in stocks as cheap for individual investors as it is for big companies. This app requires a bit more knowledge than most beginning investors have, so you might want to avoid this one if you’ve never tried investing before.

How it works: This app lets you buy individual stocks, ETFs, cryptocurrencies, and even has options for no trading fees. It’s a bit more bare-bones than Acorns and Stash, and it offers fewer features.

There is no option to have Robinhood choose the best investments for you, for example. It’s entirely your call, and that’s why it’s best for more advanced investors. Robinhood allows you to buy fractional shares of stock and ETFs, which is a great way to start building positions in higher-priced stocks, like Amazon or Google.

Unique features: Robinhood’s biggest asset is that it offers free trades. Normally, trades can come with hefty fees of $10 or more per trade, especially at some of the bigger brokerage firms. Free trades can save you a lot of money if you trade frequently.

Costs: Robinhood is free to use. If you want to advance your investing and trade on margins, you can pay $5 per month to do so with Robinhood Gold.

Related: Robinhood Review

4. Stockpile

Buying an individual stock can sometimes be very expensive. This poses a problem if you don’t have enough money to purchase an expensive stock yet, and even if you did, it’s not a good idea to tie up all your money in one single investment. Stockpile offers a unique solution to this problem through micro investing.

How it works: Stockpile offers one simple way to invest: by buying fractional shares of individual stocks and ETFs. This app won’t tell you what to invest in; you’ll need to decide for yourself.

Unique features: Stockpile specializes in one thing: offering fractional shares in individual stocks and bonds. This means you don’t need to commit a huge amount of money to buy investments with a high price tag, such as Amazon stock. Fractional shares allow you to buy a portion of one stock or ETF for an equally reduced price. In fact, you can get started for as little as $5.

Costs: All stock and ETF trades are free.

Important Considerations

• Low deposit requirements. One of micro investing’s strengths is that you can get started with whatever money you have today. That’s great for reducing the barrier to entry, but it has other side effects, too. “I’m hesitant to discourage anybody from saving money for the future,” says Justin Pritchard, a CFP® and founder of Approach Financial, “but to reach goals like education funding, financial independence, or a major purchase, you need significant dollar amounts. My concern is that people feel like they’re ‘doing’ more than they actually are with these apps.” In other words, micro investing is a great start, but you shouldn’t rely on occasionally depositing a few dollars into it as your primary way of saving.
• Investment returns can be impacted by performance and fees. Many people use micro investing sites to invest in stocks and funds that sound fun, interesting, or progressive to them. That’s a good thing because it gets people interested in investing. It also means that you’re not necessarily choosing the investments that will help your money grow the most in the long term. A fund could be interesting but grow poorly or even decline in value. That’s not what you want to see, and it’s not good for your money. Furthermore, many micro investing apps charge relatively high fees compared to their more traditional counterparts. These fees can eat away at your earnings, causing you to earn less over time.

Related: How to Start Investing with Your First $100 

Why Millennials Love Micro Investing

“The rise of many micro investing platforms like Stash and Acorns has introduced millions of millennials to investing,” says Dallen Haws, a CFP and founder of Haws Financial Planning, “because they’re so easy to use, they’ve become almost game-like.”

Indeed, micro investing syncs well with modern lives. These investment platforms are often available on apps, so you can use your smartphone to manage your account. It’s definitely not your grandpa’s investment platform.

Registering with most micro investing sites is easy. They generally take only a few minutes to set up, and you won’t have to speak with a representative. It’s all handled through a sleek investment app, and you only need a small amount of money to get started.

Micro Investing: A Small Portion of a Long-Term Strategy

Micro investing has helped make investing more accessible, particularly to novice investors and those intimidated by the stock market. But although it’s a good tool, it shouldn’t be your entire investing strategy.

Make sure you’re considering how micro investing fits in with your bigger wealth-building picture.

Use these apps as a springboard to take your investing journey further. Learn how to invest, and then use online brokers, robo advisors, or investment advisors to create a winning portfolio for your long-term goals.

“Overall, these apps are a great thing,” says Haws, “but like always, it’s how we use the tool that makes the biggest difference in our lives.”

Related: 7 Best Short-Term Investments for Growing Your Money

The post 4 Best Micro Investing Apps for Beginner Investors appeared first on DollarSprout.

With most brokerage companies, you have to pay a commission fee for each trade you make, which can range from $5 to $10 per trade. If you’re looking to be an active trader, these commissions can dip into your gains and impact your losses.

Fortunately, there are options like Robinhood, a mobile-focused brokerage company that offers no-fee trades.

What is Robinhood?

Launched in 2013, Robinhood is a commission-free trading app that allows investors to trade stocks, exchange-traded funds (ETFs), options, and cryptocurrency. There is a cash management option, but that’s not open to all users; you have to sign up for the waiting list. Additionally, you can’t use Robinhood to trade bonds, mutual funds, preferred stocks, or tracking stocks. 

Open Account

$0 Account minimum

$0 Cost per trade

DollarSprout Rating Free stock with new account

Robinhood is a commission-free mobile trading app that lets investors trade stocks, cryptocurrency, options, and ETFs with a $0 opening balance. Its streamlined design makes it easy to use, and no annual fees make it a good choice for new investors.

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Pros

• Trade with no fees
• No minimum balance requirements
• Easy, mobile-friendly interface
• Trade a variety of securities
• Margin trading available

Cons

• No retirement or other account types
• Can’t trade certain popular securities, including bonds and mutual funds
• Difficult to receive customer support

There’s a no opening minimum for brokerage accounts, but there is a $2,000 minimum for a margin account. This is a regulatory requirement, so it’s not unique to Robinhood. The minimum is regulated by the SEC, and belongs to the Financial Industry Regulation Authority (FINRA).

Is Robinhood Safe?

Robinhood is a member of the Securities Investor Protection Corporation (SIPC), which protects its members up to $500,000, including $250,000 for cash claims.

While the company offers commission-free trading, a simple, streamlined mobile app, and no opening balance requirement, users report multiple complaints ranging from poor customer service to frequent outages (including one in March 2020 that is subject to a Securities Exchange Commission investigation) to problems with trades, account closures, and money transfers._[1] They also have more reported user complaints than many of their competitors.

Because they don’t provide much guidance or make stock recommendations, and customer reports indicate that support is substandard, it’s important that you learn the basics of investing before signing up for an account. Understanding how the stock market works, including the risks, will help you navigate the platform and make informed choices about your trades and investments.

Opening a Robinhood Account

Robinhood is a mobile-focused brokerage, so the best way to get started is to download the app and sign up for an account.

After downloading the app, you’ll need to complete an application, which can be done directly in the app. If you’re approved, which typically happens instantly, you’ll receive an email with further instructions on getting started. If you’re not immediately approved, Robinhood will ask for additional information. They’ll provide instructions on what you need to send and how you can do it securely, protecting your personal data.

Once that’s received, you’ll know within five to seven days if you’ve been approved for an account. 

Since there’s no minimum balance requirement to open an account, you don’t have to save or commit a substantial chunk of your money to the opening deposit. And if you don’t have money right away, Robinhood gifts new users a free, randomly chosen stock valued between $2.50 and $225 deposited directly into their account. This free stock means you can begin trading immediately, even without purchasing anything.

You must claim this free stock within 60 days of opening your account.

Related: How to Invest in the Stock Market: A Complete Guide for Beginners

Investing with Robinhood

Robinhood offers four primary trading options: stocks, ETFs, options, and cryptocurrency. Although there are no commissions involved when trading with Robinhood, other fees may apply. Be sure you review their fee schedule so you’re not surprised or confused when they appear in your account.

Buying and selling stocks

Stocks are one of the most basic securities you can invest in, and Robinhood is a solid choice for novice investors. They provide a streamlined platform that makes it easy to buy and sell stocks. Open the app, search for the company’s name or ticker symbol, and enter the number of shares you want to purchase. You can sell stocks from your portfolio in the same way. 

In addition to being a good choice for novice investors, Robinhood is also good for those who don’t have a lot of money to invest initially. In fact, you can start investing in stocks with Robinhood for as little as $1. 

Robinhood offers approximately 5,000 stocks to choose from and more than 250 global stocks not listed on American exchanges.

Fractional shares

A fractional share is what it sounds like — a piece of a stock. When you buy a fractional share, you’re buying a piece of a stock rather than a whole one. Companies like Robinhood offer fractional shares to investors as a way of helping them afford a stock they couldn’t otherwise purchase. 

For instance, if you want to buy a share of Apple stock but don’t have enough money to pay for one full share, you can buy a piece of that stock for an amount that fits your budget. However, if you want to sell your fractional share, you must wait until the company has enough pieces to make a whole stock; these smaller pieces cannot be traded on their own.

Fractional shares are a way to diversify your investment portfolio even when you don’t have a lot of money to invest.

Buying and selling ETFs

If you’re interested in buying or selling exchange-traded funds (ETFs), you can do that with Robinhood as well. You can buy and sell ETFs in the same way as stocks. Like all of the trading services offered by Robinhood, ETFs are free to buy and sell. However, ETFs charge management fees to the people who own them.

You’ll pay anywhere from .05% to 1% or more, depending on the ETF you invest in. 

Buying and selling options

Robinhood also allows users to invest in options. Options are a way to bet whether a stock will increase or decrease in value. If, for example, you think a stock that currently costs $10 will fall in value, you can buy an option that lets you sell the stock at $9. If the stock’s price falls below $9 before the option expires, you can make a profit.

Buying and selling options with Robinhood is commission-free, and you conduct your trades directly from the app, just like ETFs and stocks. However, investing in options is riskier than stocks or ETFs, so if you have a low risk tolerance, you might not want to take advantage of this product. 

Buying and selling cryptocurrencies

Unlike many of its competitors, Robinhood allows users to buy and sell cryptocurrency including Bitcoin and Ethereum. Like other trading options, it’s commission-free to buy and sell cryptocurrency and you can do it right from the app. 

Should you choose to invest in cryptocurrency using Robinhood, it’s important to note that Robinhood Crypto — which oversees the cryptocurrency branch of Robinhood — is not a member of FINRA, the Financial Industry Regulatory Authority. Additionally, investing in cryptocurrency involves significant risk, so if you are risk-averse or don’t fully understand the risks, this might not be the best investment option for you. 

Review of Robinhood’s Features

In addition to trading stocks, options, and cryptocurrency, Robinhood offers a number of other features for its users:  

Robinhood Gold

Robinhood Gold is Robinhood’s version of a margin account. This means that you can trade with borrowed money, commonly known as “on the margin.” 

If you want to opt into this service, you can try it free for 30 days. After that, it costs $5 per month. However, the free trial only covers the $5 monthly fee, not the margin interest. This means that if you borrow more than $1,000, you will need to pay the interest. Should you try Robinhood Gold and decide it’s not for you, you can cancel it at any time. 

As with cryptocurrency and options trading, investing on the margin can be quite risky. It’s important that you understand what you’re getting into. Robinhood offers an explanation; make sure you read it in full before signing up for Robinhood Gold.

Additionally, in order to have a Robinhood Gold account, you must have a $2,000 minimum balance, per FINRA regulation. 

High-yield savings account and cash management

If you have a Robinhood account, you are eligible to join the waitlist for their cash management account. This account comes with a debit card, access to 75,000 ATMs, and 0.30% APY on all uninvested cash in your brokerage account.

You can use this money as you would cash in a regular checking or savings account — to make purchases, pay bills, or even withdraw it. The money is eligible for up to $1.25 million of FDIC insurance.

Related: The Best Online Savings Accounts of the Year

Refer a friend

If you refer a friend who also signs up for an account, you can receive free stocks. This is in addition to what you receive when you open an account.

You can earn up to $500 in free stocks per calendar year. However, as you approach the $500 threshold, you will stop receiving free stocks once the lowest-priced stock in their inventory would put you over. For example, if you earned $495 in free stocks and the least expensive one they have is $6, you will be ineligible to receive it.

It does not impact your friends’ ability to earn free stocks.

Instant transfers

Thanks to Robinhood’s relationship with a number of national banks, users can transfer up to $1,000 that’s instantly available for investing. Larger deposits may take up to five business days to process and become available.

You can transfer up to $50,000 into your account, and you can only transfer money via direct deposits. They do not accept mailed checks. 

Robinhood Review Summary

Robinhood is a great way for new investors to build a taxable portfolio of stocks and ETFs. It’s also a good platform to learn about trading options and cryptocurrency. The commission-free trades, fully mobile platform, and the ability to buy fractional shares also make it a solid choice for users without a lot of money to begin investing.

The easy-to-use, streamlined app with advanced search functions is great for users who are comfortable with mobile banking.

However, because it’s fully mobile, users should be aware of and comfortable with all the problems that might arise with managing their money through an app. Technology outages, poor internet connection, and bugs can also cause issues affecting trades and access to your money. And, given Robinhood’s propensity for technological issues and poor customer services, users might want to consider alternatives like M1 Finance or Acorns before making a decision.

The post Robinhood App Review: Pros and Cons of The Free Trading App appeared first on DollarSprout.

Do you want your money to earn you more money?

Well, it can’t do its work hiding in a bank account.

Whether you want to save for your child’s college or prepare for retirement, you’ll reach your goal faster by investing.

Here’s everything you need to know to get started today.

What Is Investing?

When you invest, you purchase something with the expectation of profiting off of it in the future.

In the 1990s, some people thought they were making smart “investments” in Beanie Babies and McDonald’s toys. But traditional investments include things like ownership in a business, real estate assets, or lending money to a person or company in exchange for interest payments.

Why Should I Invest?

Merely saving money isn’t enough to build wealth. A bank will keep your money safe. But, each year, inflation makes every dollar you’ve tucked away slightly less valuable. So, a dollar you put in the bank today is worth just a little less tomorrow.

Comparatively, when you invest, your dollars are working to earn you more dollars. And those new dollars work to earn you even more dollars. The snowballing force of growth is known as compound growth.

Over the long term, investing allows your assets to grow over and above the rate of inflation. Your past savings build on themselves, instead of declining in value as the years pass. This makes it significantly easier to save for long-term goals like retirement.

Related: 15 Expert Tips for Beating Inflation 

When Should I Start Investing?

Yesterday. But if you haven’t started yet, today is a great second choice.

In general, you want to start investing as soon as you have a solid financial base in place. This includes having no high-interest debt, an emergency fund in place, and a goal for your investments in mind. Doing so allows you to leave your money invested for the long-term – key for maximum growth – and be confident in your investment choices through the natural ups and downs of the market.

Benefits of starting young

Compound growth requires time. The earlier you start investing, the more wealth you can create with fewer dollars.

When it comes to investing, time is your most powerful tool. The longer your money is invested, the longer it has to work to create more money and take advantage of compound growth. It also makes it far less likely that one harsh market downturn will negatively impact your wealth as you’ll have time to leave the money invested and recover its value.

Let’s look at an example:

Since 1928, the average return of the S&P 500 (a set of 500 of the largest public companies in the U.S. that is often used to approximate the stock market) is about 10%.

So, let’s say you’re 25 and put $5,000 in the S&P 500. You see a 10% increase in value each year, letting your money continue to grow. When you turn 65, you open your account to find you have over $226,000. An excellent retirement gift to yourself!

However, if you waited until you were 35 to start investing, your value at 65 would only be $87,000. Still impressive, but fewer than half of what you would have had if you started a decade earlier.

Pay off high-interest debt first

View paying down high-interest debt as investing until you no longer have those debts. Every dollar toward principal earns you an instant return by eliminating future interest cost.

If you still have high-interest debt, such as credit cards or personal loans, you should hold off on investing. Your money works harder for you by eliminating that pesky interest expense than it does in the market. This is because paying off $1 of debt balance saves you 12%, 14%, or more in future interest expense. More than traditional investments can be expected to return.

Focus on getting out of debt as fast as you can, then dive into investing.

Have an emergency fund in place

To reduce the risk of having to pull money out of your investments early, have an emergency fund to protect from life’s unexpected twists and turns.

Remember how we said time is the most powerful tool? To start investing, you have to be set up to let that money stay invested. Otherwise, you limit your time horizon and could force yourself to withdraw your money at the wrong time.

To protect yourself from unexpected expenses or job layoffs, save a sufficient emergency fund for your needs. Do not plan for your investment accounts to be a regular source of cash.

Starting small is OK

Sometimes people think they can’t start investing until they have a significant amount of money. But this means many people give up years of compound growth waiting until they feel rich enough. No matter how small, get your money working for you as soon as possible.

Consider our previous example of the $5,000 invested at 25- or 35-years-old. Pretend for a moment the 35-year-old didn’t have $5,000 to invest at age 25, but she did have $500. And she thought, maybe, she could scrape together $50 a month to add to her $500 investment.

If she invested $500 at age 25, and then $50 a month until she had put away a total of $5,000, she would have almost $174,000 at retirement age. That is double what she would have had if she waited until she had $5,000 at age 35.

Starting small makes a significant difference, especially if it means you get in the market sooner.

Investing 101: Basic Investing Terms

The number one thing that scares off new investors is the jargon. The investment market has a ton of jargon. So, we’re going to give you the inside scoop to make it less intimidating.

What is a stock?

A stock, also known as a “share,” is a tiny ownership stake in a business. Public companies allow anyone to buy or sell ownership shares of their business on exchanges.

If you own a stock, you are actually a part owner of the company. Go you! While owning a share of Walmart won’t give you the power to fire the slow cashier at your local store, you do have some rights. You can, for instance, vote on members of the Board of Directors.

What is a bond?

A bond is debt of a corporation, municipality, or country.

By purchasing a bond, you are loaning money to one of these entities. For companies, bonds are typically segmented into $1,000 increments that pay interest every six months, with the full value paid back at “maturity,” i.e., the date the debt is due. Government bonds are typically known as “treasuries.”

What is a portfolio?

A portfolio is a collection of all your investments held by a particular broker or investment provider. You may own some individual stocks, bonds, or ETFs. Everything in your account would be your portfolio.

However, your portfolio can also mean all your investments across all account types, as this gives a better picture of your entire exposure.

What does diversification mean?

Just like you wouldn’t invest all your money in your friend’s idea for a pumpkin-spiced toothpaste business, you don’t want to only invest in one stock or bond. Diversification means owning a variety of different investments, so your success or failure isn’t dependent on just one thing.

To be properly diversified, you want to make sure your investments actually have variety. Owning three different clothing companies still means you’re facing all the same risks. An import tax on cotton products, for example, could crush the value of all three companies at once.

What is asset allocation?

There are three main asset classes for most investors: stocks, bonds, and cash. Asset allocation is how you split your investments across those three buckets.

Stocks offer greater long-term returns, but significantly greater swings in value. These swings, sometimes north of 20% up or down in a given year, can be a lot to stomach. Bonds are safer but provide lower returns in exchange for that security.

You determine your asset allocation by considering the length of time until you need your money, your risk tolerance, and goals.

What are ETFs?

ETFs, or exchange-traded funds, allow you to buy small pieces of many investments in one security.

An ETF is a fund that holds numerous stocks, bonds, or commodities. The fund is then divided into shares which are sold to investors in the public market.

ETFs are an attractive investment option because they offer low fees, instant diversification, and have the liquidity of a stock (they are easy to buy and sell fast). Buying a stock or bond ETF gives you access to numerous investments, all held within that ETF.

Stock funds

A stock ETF often tracks an index, such as the S&P 500. When you buy a stock ETF, you are purchasing a full portfolio of tiny pieces of all the stocks in the index, weighted for their size in that index.

For instance, if you purchased an S&P 500 ETF, you are only buying one “thing”. However, that ETF owns stock of all 500 companies in the S&P, meaning you effectively own small pieces of all 500 companies. Your investment would grow, or decline, with the S&P, and you would earn dividends based on your share of the dividend payouts from all 500 companies.

Bond funds

A bond ETF owns a basket of bonds, often tracking an index, just like the stock ETFs.

These funds could own a mixture of government bonds, high-rated corporate bonds, and foreign bonds. The most significant difference between holding an individual bond and a bond ETF is when you are paid interest. Bonds only make interest payments every six months. Bond ETFs make payments every month, as all the bonds the fund owns may pay interest at different times of the year.

Types of Investment Accounts

If you’re ready to buy stocks, bonds, or ETFs, you may be wondering where these types of investments are held.

There are a few different types of accounts in which you can hold investments. But they can’t live in your standard bank account. Here are your options.

Retirement accounts

Saving for retirement is most people’s biggest long-term goal. With the average person retiring at 62, either by choice or due to layoffs and health issues, most Americans face 20 years or more of retirement in which they need assets to support themselves.

To help you prepare for this massive goal, the government offers tax incentives. However, if you invest in these accounts, your access to your funds is limited until 59 ½. In some cases, there are penalties for withdrawing your money earlier.

Here are the type of accounts that offer tax savings.

Employer-sponsored accounts

Employer-sponsored retirement accounts such as 401(K)s, 403(B)s, 457s, and more, allow employees to save for retirement directly from their paycheck. Some employers offer contribution matches as a perk to double-down on your retirement preparation.

Typically, you put “pre-tax” money into these accounts, which means you don’t pay income tax on those dollars. Any money invested grows without tax until you ultimately withdraw it for living expenses in retirement. As you withdraw funds, you will pay income tax on the withdrawals. However, most people are in a lower tax bracket in retirement so pay lower rates.

As of 2020, you can contribute up to $19,500 in a given year to one of these accounts, not including any employer contribution. If you are 50 years or older, you can contribute up to $26,000 a year.

Traditional vs. Roth IRA

If you don’t have access to an employer-sponsored retirement account or have already maxed out your contribution, you can also open an Individual Retirement Account (IRA) to invest.

There are two types of IRAs: Traditional and Roth.

A Traditional IRA works the same way as employer-sponsored plans when it comes to taxes. Any money contributed will be treated as “pre-tax” and reduce your taxable income for that year.

A Roth IRA, on the other hand, is funded with post-tax dollars. This means you’ve already paid your income tax, so when you withdraw it in retirement, you don’t pay income or capital gains tax. The money is all yours. Roth IRAs offer excellent tax benefits but are only available to certain income levels. If you make more than $135,000 a year as a single filer or over $199,000 as a married filer, you aren’t eligible for a Roth IRA.

As of 2020, you can contribute up to $6,000 per year to an IRA. If you are 50 years or older, you can contribute up to $7,000 a year.

529 college savings plans

These accounts, offered by each state, provide tax benefits for parents saving for college. Operating like a Roth IRA, contributions are made post-tax, but all withdrawals are tax-free as long as the funds are used for higher-education expenses.

Your state may offer tax benefits or contribution matches for investing in your local 529 plan, but you can utilize any state’s 529. Since each state has different fees and investment options, be sure to find the best 529 for your money.

Brokerage accounts

Brokerage accounts offer no tax benefits for investing but operate more like a standard bank account to hold your investments. There are no limits on annual contributions to these accounts, and you can access your money at any time.

Cash or cash equivalents

Since investing should only be undertaken for the long-term, you may need to hold onto cash while saving for shorter-term goals. In that case, a traditional bank account might not do the trick. Checking and savings accounts offer incredibly low interest rates, if any at all, which means you are entirely at the mercy of inflation.

Luckily, there are cash accounts that pay higher interest:

A CD, or Certificate of Deposit, is a savings account that restricts access to your cash for a specified period (6 months, 12 months, 24 months, etc.). There is a small penalty if you want to withdraw your money before the term is up, but these accounts typically offer a higher interest rate in exchange for the lack of access.

High-yield online savings accounts are the middle ground between CDs and traditional savings accounts. They pay higher interest than a conventional savings account but still allow a few transactions a month so you can access your cash if you need it. Many online high yield savings accounts have no deposit minimums or fees.

Money market accounts are very similar to high yield savings accounts, but with slightly higher interest rates and higher deposit requirements. For instance, CIT Bank’s money market account offers a 1.85% interest rate but requires a $100 minimum deposit.

In any of these accounts, your cash deposited is not at risk. FDIC insurance guarantees you your money back, even if the bank that holds your account goes bankrupt.

Related: Best Online Savings Accounts for 2023

Where to Focus First

When first starting to invest, it can be hard to choose between the multiple types of investment accounts. As you begin, remember to focus where you see the most value.

First, contribute enough to your employer-sponsored retirement plan to get the full value of any match the company offers. This is free money and an instant return on your investment. If you aren’t sure if your employer offers a contribution match, reach out to HR for the most up-to-date policies.

Second, max out contribution limits on your tax-advantaged accounts – if you are primarily saving for early retirement or a child’s college. The tax benefits in these accounts save you money that you don’t want to turn over to Uncle Sam unnecessarily.

Finally, invest any excess capital in brokerage accounts. This will help you save for long-term goals like buying that vacation house in ten years.

Note: The above assumes that you have paid off all high-interest debt and have a solid budget in place. If you haven’t done those things yet, get them squared away before you start investing.

7 Golden Rules for Investing Money

You may be a rookie investor, but that doesn’t mean you need to make costly rookie mistakes. Follow these seven golden rules and you’ll be on the path to success.

Click here to see the whole infographic.

1. Play the long game

Never invest for the short-term. The market moves up and down in natural cycles that can’t be timed. Investing for fewer than three to five years doesn’t give you enough time to rebuild asset value if you hit a downturn at the wrong time.

2. Don’t put all your eggs in one basket

Don’t put too much of your money in any one stock or bond where one issue could destroy your wealth. Diversify with low-cost, index ETFs and avoid stock picking.

3. Make investing a monthly habit

Despite headlines continually calling a market top or bottom, no one can accurately determine where we are in the cycle at any given time. The best way to guarantee that you buy at the right times is to make investing a monthly habit. Invest each and every month, regardless of headlines or market performance.

Related: How to Get Started Investing with $100

4. Invest only what you can afford to lose

Investing is risky. While the long-term trend has historically been upwards, there are also years of deep declines. If you need money in the near-term, or the thought of seeing your account balance drop 20% makes you sick to your stomach, don’t invest those funds.

5. Don’t check your portfolio every day

Investing is the one place where a “head in the sand” strategy might be the smartest method. Set up auto deposits into your investment accounts each month and only look at your portfolio once every three to six months. This reduces the likelihood of panic selling when the market falls or piling in more money when everything seems like rainbows and butterflies.

6. Keep your fees low

Mutual funds and ETFs have expense ratios. Many brokerages charge trading fees. Investment providers from financial advisors to robo-advisors charge management fees. All these fees eat away at your wealth over time.

Sticking to index funds and ETFs keeps your fees low while guaranteeing you see the performance of the market so that you can keep more money in your pocket.

7. Listen to Warren Buffet’s investing advice

Warren Buffett is possibly the most famous investor in history. He’s created a multi-billion-dollar net worth in just one generation. Learn from his advice to invest for your own future.

“Someone is sitting in the shade today because someone planted a tree a long time ago.”

“I never invest in anything I don’t understand.”

“If you don’t find a way to make money while you sleep, you will work until you die.”

“The stock market is a device for transferring money from the impatient to the patient.”

“It is not necessary to do extraordinary things to get extraordinary results.”

How to Start Investing Today

An easy way to start investing today from your phone or laptop is by opening an account with Acorns, a micro-investing app ideal for beginner investors.

The basic plan, Acorns Invest, starts at just $1/month with a free $10 sign-up bonus for new users.

When you make a purchase with a linked debit or credit card, Acorns rounds up to the nearest dollar and invests your spare change. You can boost your Round-Ups by 2x, 5x, or 10x.

In addition to Round-Ups, you can set up recurring daily, weekly, or monthly investments to your Acorns portfolio. Its Found Money service will also find cashback opportunities from 200+ partners and automatically invest your savings when you make a purchase.

It only takes a few minutes to set up an account. Once you complete your profile, Acorns suggests one of its five portfolio options based on the information you provided. However, you have the option to override its suggestion if you prefer a portfolio with more or less risk.

The platform automatically rebalances your portfolio and reinvests all dividend payments to continue growing your investments.

Acorns is a smart option for hands-off investors and those just getting started. As your account grows, the $1-3 monthly fee stays the same, effectively making the service cheaper over time.

The post How to Invest: A Beginner’s Guide to Investing in the Stock Market appeared first on DollarSprout.

What are the best short-term investments to maximize your returns?

Most often, people in this situation are saving for a short-term goal — a down payment on a house, shiny new car, or planning for kids in the not-too-distant future.

You don’t want to leave your money sitting around in a low-interest savings account making mere pennies a month. However, you also don’t want to take on a great deal of risk since that’s money you’re planning to use in the next few years.

Short-Term High-Yield Investments

Putting your money into short-term high yield investments can be the perfect compromise between earning basically 0% interest and taking bigger risks with long-term investments. Don’t worry, I’ll explain exactly where to invest money to get good returns and also give some short-term investment examples along the way.

What Constitutes a Short-Term Investment?

When most people think of investments, they think of things like stocks, bonds, 401(k)s, and IRAs. These types of investments and investment vehicles are typically part of a long-term investment portfolio used to fund goals like saving for college funding retirement. They often mature for decades before they’re cashed in for their intended purpose.

A short-term investment, on the other hand, grows for several months to years. Once it matures, the investment can be cashed in for its full value. Therefore, if you know you’ll need your funds in the next 3-5 years or sooner, short-term investments are usually the way to go.

Are Short-Term Investments Risk-Free?

Short-term investments usually carry far less risk than long-term investments, but that does not mean that they are completely risk-free.

If you’re relying on your money being there when you need it in a few short months or years, it makes sense that you would want to take on as little risk as possible. However, even some of the best short-term investments come with some degree of risk.

That said, you can still manage your risk by choosing the right options for your situation.

As with most types of investing, the less risk you take, the less reward you will often receive.

The Best Short-Term Investment Options With High Returns

Now that we’re on the same page with what short-term investment options with high returns are and the risks involved with any investment, let’s take a look at how to start investing your money short term for the best combination of returns vs. safety.

1. Online high-interest savings accounts

Time Span: Indefinite

Return: 0-2.50% APY

When it comes to investing young, savings accounts aren’t the most lucrative option.

However, if you want access to your money at any time and to maximize your returns, high-yield online savings accounts are a great option.

Every bank offers FDIC coverage up to $250,000. As long as your account stays below that amount, you’re guaranteed access to your money even if the bank fails, which is highly unlikely.

It’s not uncommon to see some of the best savings accounts offer interest rates that are more than 5-10 times the national average. With no monthly fees and low (or no) minimum balance requirements, you can withdraw your money at any time without closing your account.

With inflation currently around 2.4%, you’ll still lose purchasing power with this short-term investment strategy (i.e. inflation is greater than your return)._[1] However, you’ll still see a higher return than keeping your money in a lower-interest savings account.

Related: 15 Expert Tips for Beating Inflation

2. Money market accounts

Time Span: Indefinite

Return: 1-2%

Money market accounts are a hybrid between a checking and savings account. With a money market account, you can write checks and make withdrawals. However, you may be required to keep a higher minimum balance to keep from incurring fees.

Newly-opened money market accounts typically offer higher interest rates than savings accounts. Restrictions on the number of withdrawals allowed within a given period of time make them less liquid than a checking account but more liquid than a CD, and with comparable interest rates.

3. Certificate of deposit (CD)

Time Span: 3 months to 5 years

Return: 0.5-3%

CDs are another great option for short-term, high-yield investments.

With certificates of deposit (CDs), you give up flexibility in being able to access your funds in exchange for a higher return. CDs are essentially a loan you give to a bank. They come with a fixed interest rate and a determined maturity date, at which you’ll receive access to your original investment plus the accumulated interest.

You can still withdraw your money from a CD at any time. However, doing so will incur an early withdrawal penalty, the amount of which varies depending on the bank.

The length of CDs varies from 3 months to 5 years. The longer you’re willing to part with your money, the more interest you can earn. An online bank like CIT Bank offers some of the highest CD interest rates.

Related: CIT Bank Savings Builder Account Review – Pros & Cons

4. Take advantage of promotional deals

Cash-back rewards aren’t what most people imagine when they think of short-term investments. However, taking advantage of these promotional offers is an easy way to make money in a short period of time.

Many rewards credit cards offer a bonus of some sort when you sign up and spend a certain amount within the first three to six months. For example, the Capital One® Venture® credit card offers a 50,000-mile bonus. In order to qualify, you’ll need to spend $3,000 in the first 3 months of opening your account.

Those 50,000 miles translate to $500 in travel. Not a bad investment for minimal effort.

We don’t recommend racking up credit card debt just to collect bonuses. However, if you only use your new card for expenses you’d be paying for anyway (food, groceries, gas, utilities, etc.), and pay it off every month, then it can be a decent short-term investment opportunity.

Another promotional offer to look out for is bank account bonuses. Oftentimes, banks will offer promotions for new customers who open an account and sign up for direct deposit or deposit a specified minimum within a certain number of days.

These rewards range from $100 to $400+. Right now, Chase is offering a $350 bonus to new customers.

Qualifications include opening a checking account and setting up direct deposit ($200 bonus), opening a bank account online and depositing $10,000 of “new” dollars (not from another Chase account — $150 bonus).

5. Municipal bonds

A municipal bond is issued by a local, state, or government agency and used to complete public projects like building highways or new schools.

These short-term high-yield investments (well, depending on the bond) are backed by the government entity that issues the bond, and interest earned is usually exempt from federal taxes.

There are two types of municipal bonds: revenue or general obligation (GO). Revenue bonds are backed by a specific revenue source, such as hotel tax or toll road fees. General obligation bonds, on the other hand, are not backed by a specific project.

Although it’s possible for the issuer to default on the bond, the chances of that happening are relatively low, especially compared to corporate bonds. The risk is associated with interest rates.

When interest rates rise, the value of a municipal bond decreases. When interest rates decline, the value of a bond increases. Longer-term bonds are more susceptible to fluctuations in interest rates. Therefore, the shorter the maturity date, the less risky your investment.

One of the best investment apps on the market, Ally Invest, offers an easy and straightforward way to invest in municipal bonds.

6. Peer-to-peer lending

Time Span: 3-5 years

Average Return: 3-8% per year

Where To Invest: LendingClub

Peer-to-peer lending involves loaning money to individuals and businesses outside of the traditional banking and loan system. This is typically done through online platforms that connect borrowers with lenders. There are benefits on both sides of this equation.

Borrowers receive access to more money at lower interest rates than they may find elsewhere. Investors (you) get an alternative short-term investment strategy with competitive returns, plus the joy of knowing you’re helping fund someone else’s goals.

The way you invest with peer-to-peer lending companies is by purchasing notes, which represent a fraction of a loan. You can spread your investment over multiple notes with different loans and borrowers, thereby diversifying your portfolio and reducing risk.

Here’s how LendingClub explains it:

LendingClub offers notes as low as $25 each. That doesn’t mean you’re funding someone’s $25 loan. Rather, you’re funding a fraction of a loan in the amount of $25, and other lenders fund the rest.

According to LendingClub, 99% of its borrowers with 100+ notes see positive returns.

What makes peer-to-peer lending one of the best short-term investments is the level of ease and simplicity. LendingClub assigns a grade of A through E to each loan. As a lender, you get to choose the types of loans you want in your portfolio by either selecting one of its portfolio options or manually selecting loans.

As with any investment, the higher the risk, the greater the potential reward. Lending Club’s website cites historical returns between 3% and 8% per year.

Keep in mind that with peer-to-peer lending, your money is tied up for three to five years. If you need access to your funds sooner than that, then take a look at the other items on this list.

7. Pay off high-interest debt

Paying off high-interest debt is one of the best short-term investments you can make. I know that getting out of debt may not sound like an investment, but let’s look at the math.

Say you have a $3,000 balance on a credit card with a 20% APR. You could save around $600 in one year’s interest by paying off the balance. That’s equal to a 20% return on your investment, not to mention the years of future payments wiped clean.

If you’re concerned about the idea of parting with so much cash all at once, then consider transferring your high-interest debt to a 0% APR credit card and paying it off before the introductory interest period ends.

For example, the Discover it® card offers a 0% APR for the first 14 months. That gives you over a year to pay off your high-interest debt without accruing any more interest.

What’s the Best Way to Invest Money Short Term?

That depends on a few things. When deciding on the best way to invest money short term for your situation, consider your timeline. How long until you need your money back? If your savings goal or project is a few years out, then you may consider options like peer-to-peer lending or CDs.

If, however, you only have a few months to a year to invest, then promotional bank deals or a high-interest online savings account may be a better option. Typically, the longer the maturity of your investment, the higher the return.

Another factor to consider is the level of risk you’re willing to take on. Municipal bonds, for example, are riskier than opening an online checking or savings account. As with maturity, the greater the risk, the higher your potential return.

As you can see, short-term investing is vastly different from investing in the long term. Whichever methods you choose, you’ll want to make sure your money is easy to access and not too risky for your short-term goals.

The post 7 Best Short-Term Investments for Growing Your Money appeared first on DollarSprout.

Remember your piggy bank or loose change jar you had as a kid? How you would drop all your nickels, dimes, and quarters in there until it was packed full?

If you’re like me, every time you brought that change in the bank it added up to more cash than you thought.

Acorns wants to take this “out of sight, out of mind” savings strategy to the next level. They round-up your expenses to the nearest dollar, then invest your nickels and dimes for future goals.

Recently, the company added retirement accounts, a debit card account, and a $10 sign-up bonus.

But can this micro-investing strategy really grow your wealth? Let’s take a look.

What Is Acorns?

Acorns is part spare change jar, part robo-advisor. This app rounds up your purchases on linked credit or debit cards — now with the option to boost those round-ups by 2x, 5x, or even 10x — and invests that money for you.

Acorns offers three levels of service:

Invest: $1/month

Summary: Round purchases up to the nearest dollar and invest the difference in a taxable account. Add cash to your investments regularly and get kickbacks to boost your investments from purchases at partner retailers.

For $1 per month, this is Acorns’ lowest cost option. To sign-up, you connect your bank account and link any credit and debit cards where you want round-up investments to occur.

Then you select the amount of money you want to contribute to your Acorns investment to get started. There is no minimum, but the app won’t actually begin investing for you until your Round-Up balance equals $5 or more.

Finally, you’ll answer some questions about your financial situation, goals, and risk tolerance. Acorns will use this to recommend one of its five ETF-based investment portfolios. You can override their selection if you want more or less risk in your portfolio.

In addition to your Round-Up investments, you can set recurring investments that occur daily, weekly or monthly. Acorns Found Money service is also partnered with over 200 brands that give you cash back, automatically invested, for purchases.

Note: This account level used to be free for college students for up to 4 years, but Acorns no longer offers this perk.

Invest + Later: $2/month

Summary: Original Acorns plus the ability to invest in an Individual Retirement Account (IRA).

In 2018, Acorns added retirement investments to their platform. Now you can invest in a Roth, Traditional, or SEP IRA with Acorns. Investments into your Acorns Later account occur the same way as with the original Acorns service.

Invest + Later + Spend: $3/month

Summary: Acorns online checking account with full bank services, FDIC insurance, and the ability to boost your Acorns + Acorns later investments with instant Round-Up and cash back from local retailers.

The most recent addition to the Acorns platform is a digital checking account. Acorns Spend is a full-service checking account allowing digital direct deposit, mobile check deposit and payment, and unlimited fee-reimbursed ATM withdrawals.

Acorns Spend allows for real-time Round-Ups, custom spending strategies to boost your savings, and increased Found Money cash-back with up to 10% invested from local places you regularly visit.

How Does Acorns Work?

Acorns’ investing service, like most robo-advisors, is based on Modern Portfolio Theory created by Dr. Harry Markowitz. It has five optimized portfolios to choose from and automatically rebalances your portfolio and reinvests all dividend payments regularly.

Each Acorns portfolio is made up of ETFs, or Exchange Traded Funds, with exposure across multiple asset classes. These ETFs have internal expenses that equal about 0.10% of your investment over time.

As you add money to your account through Round-Ups or scheduled deposits, Acorns will invest that money for you based on your risk-profile. If you are using the basic Acorns account, this will occur in a taxable investment account.

You can withdraw your money from Acorns at any time, but investment withdrawals can take 5 to 7 business days. And the reality is, you don’t want to use your Acorns savings as a regular source of cash.

Investing is a long-term game. By pulling money from this account for day-to-day expenses and goals, you’ll increase the chance of losing money in the market.

Acorns Review: Frequently Asked Questions

With so many options out there, investors have questions. Here are the top queries we’ve seen around the web that we’d like to cover in our Acorns review.

Are small Round-Up investments enough to matter?

When it comes to saving for your future, every little bit helps.

At the same time, should Round-Up investments be the core part of your investing strategy? No.

But even investing $30 a month at a 7% market return adds up to over $4,900 in 10 years. Put that same amount in an online savings or money market account, and you’re only looking at just under $3,900. And the gap between investing and saving only increases over time. That’s the power of compound growth.

How much does Acorns cost?

Acorns offers three plans:

• Invest, $1 per month
• Invest + Later, $2 per month
• Invest + Later + Spend, $3 per month

For small accounts, the $1 monthly fee is very high and offsets any reasonable potential gain from the investments.

Let’s assume you had 50 Round-Up transactions a month, at an average round up value of $0.40. The Acorns app would invest $20 for you each month but would take 5% of those savings in Acorns fees.

As your account value increased, that percentage would decline. But you would need to have $5,000 invested before Acorns’ fees were as low as Betterment at 0.25%. And Betterment offers those fees with no minimum investment threshold and with access to a retirement account. You would need $10,000 invested in an Acorns IRA to match Betterment’s fees.

What a $1/mo Fee Means for a Taxable Account:

Are there risks with investing with Acorns?

As with any investment, performance isn’t guaranteed. Investing has risks which means the value of your portfolio can trend up and down over time. While the S&P 500 has consistently provided returns around 8% annually, year-to-year variations could mean your account loses substantial value — sometimes in excess of 10% or more.

The biggest risk for Acorns users is deciding to stop contributing to your account and keeping it small. Remember, the smaller your account balance remains, the more impact the monthly fee has on your overall account balance.

If you have plans for your money in the next three to five years, opt for a high-interest savings account instead. 

Related: DollarSprout’s Chime Bank Review

Is it okay to invest large sums of money with Acorns?

For hands-off investors with large sums to work with, the flat-rate fee may look attractive. For example: If you have over $10,000 to invest in the Invest + Later membership level and your fees drop to below the levels of top robo-advisor competitors like Betterment and Wealthfront, Acorns appears to be a cost-effective option.

However, I would still not recommend investing large amounts with Acorns. Their investment options aren’t as robust as the bigger players. Portfolios include less diversification across asset types and no ability to customize asset allocation outside the five key portfolios.

In addition, if you are primarily investing in a taxable account (the basic Acorns level), you don’t get tax-loss harvesting to improve long-term returns offered by many competitors.

Finally, you don’t get access to professional financial support with Acorns. Larger robo-advisors provide some access to Certified Financial Planners (CFPs) to answer your burning questions. You might not have any today, but as your portfolio grows or we hit a downturn in the market, it can be a comforting option.

Who is Acorns best for?

Acorns is best for new investors who are looking for a hands-off solution to growing their savings.

Is Acorns Worth It? 

When it comes to round-up investing apps, Acorns is among the best in the business. It’s easy to use, has an excellent education platform for new investors, and simple, straightforward fees.

However, whether the $1-3 monthly fee is a benefit or a detriment really depends on your account balance. If you’re only adding a few dollars a month to your Acorns account, that $1 a month will hinder your investment growth.

$10 Bonus

$0 Account minimum Need $5 to start investing your funds.

$1 to $5 Monthly Fees Depends on plan you choose.

DollarSprout Rating

The Acorns app is easy to use and perfect for new investors who are learning the ropes. Investors make purchases using a linked card. Acorns rounds up to the nearest dollar and invests the extra change. Users can also set automatic recurring investments on a daily, weekly, or monthly basis.

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Pros:

• Free investing for college students
• Completely automated
• No account minimum
• Higher-tiered plans offer cash back at specific retailers

Cons:

• They charge an account fee and other fees for IRAs
• Limited portfolio options
• Monthly fee can be a high percentage for those with smaller account balances

The post Acorns Review 2023: Pros, Cons, and How It Works appeared first on DollarSprout.

And even though real estate investing is one of the most popular ways to reduce risk and diversify a portfolio, getting started usually requires a lot of money upfront. That’s where Fundrise steps in.

Fundrise is an online real estate investing company. They aim to bring residential and commercial real estate investing to the average person — and eliminate the need to have tens of thousands of dollars to get started.

With direct investment REITs, your money goes straight to the properties. That means you get exposure to dozens of assets with a single investment.

But should crowdsourced real estate investing have a place in your investment portfolio?

*This is an endorsement made in partnership with Fundrise. While we do earn a commission from partner links on DollarSprout, our opinions and judgments are our own. 

Fundrise Review at a Glance

Open Account

$500 Account minimum

0.85% Management Fee

DollarSprout Rating

Fundrise is a platform designed exclusively for crowdsourced real estate investing. It offers diversification, access to experts to ask questions, and options for balanced investing, long term growth investing, or supplemental income investing. It's also open to both accredited and non-accredited investors.

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Pros:

• Open to non-accredited investors
• Low investment minimum
• Historically strong returns

Cons:

• Limited liquidity
• Fee structure isn’t entirely straightforward
• Methodology hasn’t been tested in a strong market downturn yet

If you have a long-term investment outlook and are looking to diversify into real estate without a tremendous amount of capital to commit, Fundrise is a solid choice.

However, due to the newness of crowdsourced real estate investing in general, Fundrise is not a good fit for someone who isn’t prepared to see potential steep valuation drops in an economic downturn.

Fundrise Reviews BBB

Fundrise has an A+ rating with the Better Business Bureau. According to BBB, Fundrise has been accredited since 11/23/2016 and they have been in business for 7 years.

What Is Fundrise?

Before we go too far in our Fundrise review, we need to talk about what exactly it is. Fundrise is a real estate crowdfunding company founded in 2012. Its main products are eREITs and eFunds. They allow the average investor to access broader portfolios of real estate assets by purchasing shares.

At Fundrise, with just $500 you can invest in a starter portfolio of private real estate deals.

eREITS are real estate investment trusts that focus on private commercial real estate. Those REITs either buy and manage income-producing commercial properties or offer mortgages to such assets.

eFunds are portfolios of single-family housing rentals or developments in areas where there are housing shortages.

Investors in Fundrise make money in two ways:

1. Quarterly dividends from the property management, rent, or mortgage payments of the assets, and
2. Changes in the property values.

These REITs are a unique aspect of Fundrise. Most crowdfunding platforms require you to individually invest in each project, instead of buying a more diverse portfolio.

Fundrise App

There are questions about the “Fundrise app” circulating, but as of yet, Fundrise has not released an app for their service. Everything is done through the Fundrise website (which is mobile friendly) but not on a dedicated app. You can still use Fundrise on your mobile device but just be sure to go directly to their website to login.

How Does Fundrise Work?

To date, Fundrise has invested over $1.4 billion in over 150 real estate assets across the U.S. These assets are divided into five eREITS and three eFunds with a range of risk profiles and investment goals.

Fundrise looks to offer improved investment returns for the average investor. They do this by taking advantage of the premium returns typically experienced in the private market.

Public investments – things traded on an exchange like stocks or bonds – have higher liquidity and transparency, which increases demand and drives prices up. Fundrise estimates that this liquidity sacrifices one-third of your long-term returns.

However, the average investor can’t get into private investing on their own. You often need hundreds of thousands, if not millions of dollars to do private deals.

So, Fundrise uses the collective might and assets of thousands of investors to get a seat at the table.

Fundrise actively finds and acquires midsize real estate on behalf of investors. Then the company improves the assets to increase yields from property management fees, rents, or an eventual sale of the asset.

Alternatively, the company offers mortgage loans for large commercial projects. In those cases, the investors are compensated by the interest payments from the mortgages.

Then, each of the acquired assets is allocated to one of five eREITs or three eFunds.

At Fundrise, you aren’t investing in a specific asset, or even a particular eREIT or eFund. Investors have the choice of three main portfolios – Supplemental Income, Balanced Investing, or Long-Term Growth – that each offer different risk profiles based on your investment goals.

 

 

 

 

 

 

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Real Estate is still one of the best ways to bring in extra money every month and grow your net worth! ⁣ ⁣ There is so much information on the internet to learn about Real Estate investing. ⁣ ⁣ People like @gpstephan and @meetkevin cover so much real estate investing information on their YouTube channels, making real estate investing so much simpler. ⁣ ⁣ Do you own or hope to own real estate one day?

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Fundrise Review: 4 Options

Here’s a breakdown of the 4 main Fundrise options:

Long-Term Growth

• Aim to earn returns via appreciation in share value, with fewer dividends
• Invest in a growth-oriented real estate private equity strategy
• Portfolio allocated more toward equity real estate assets

Balanced Investing

• Aim to earn returns via a blend of dividends and appreciation
• Invest in a balanced mix of income and growth strategies
• Portfolio allocated across both debt and equity real estate assets

Supplemental Income

• Aim to earn returns via quarterly dividends, with less appreciation
• Invest in an income-oriented real estate private equity strategy
• Portfolio allocated primarily to debt real estate assets

Starter Portfolio ($500 Minimum)

• Instantly diversify across 36+ real estate projects
• Most popular choice for new investors
• Free upgrade to any of the 3 advanced plans above

Fundrise Fees, Facts and Figures

Frequently Asked Questions on Fundrise

New types of investing naturally create a whirlwind of questions. While we could make this section pages long, we are going to stick to the top questions to which we think you should pay attention.

What returns can I expect from Fundrise?

That’s the million dollar question that we need to cover in our Fundrise review. Unfortunately for you (and me) I am not a fortune teller.

While we can look at historical returns to get an idea of potential future returns, no one knows what the future will hold.

However, Fundrise does have a promising track record.

Taking a look at historical returns, Fundrise has been around the high end of its projected long-term returns in 3 of the last 4 years.

In that time, the company has grown assets under management (the number of dollars they are actively investing) significantly, which also plays into the steep cumulative total returns chart shown below.

Fundrise and other asset managers do provide projected annual returns to help guide investors to their target returns. They don’t want you floating out there in space expecting a 200% return when they were aiming for 10%.

Fundrise’s Balanced Investing Plan has a projected annual return over 20 years of 7.8% to 11.5%. Both of the other plans fall in very similar ranges. The Supplemental Income plan targets a slightly lower return and the Long-Term Growth plan is marginally higher.

Note: This projected range is simply some (very) smart people doing their best to predict the future. They could be wrong. You could see better returns, or you could see much worse.

And when you start changing the timeline — for instance, if you want to take your money out in 5 or 10 years, the range of potential returns widens. It should go without saying that investing in real estate is designed to be a long term investment strategy.

Related: Looking for faster ways to make money? Check out these 25 ways you can make money online.

Couldn’t I just buy a publicly-traded REIT?

Yes and no.

A publicly traded REIT will give you exposure to commercial and residential real estate, likely with lower fees and greater liquidity. But there are a few fundamental differences to remember.
Publicly traded REITs are more likely to be correlated with the stock market than the broader real estate market as the investor base is more likely to be stock market investors, so they follow similar behavior.

Most publicly traded REITs are much larger than Fundrise, and thus have to focus on larger deals. A small deal won’t make a dent in their overall returns. Fundrise gives you access to a different class of real estate, namely mid-sized commercial and residential assets.

Returns for publicly traded REITs are generally lower than non-traded REITs over the long-term. However, this has not been tested for Fundrise. The company is only six years old and crowdsourced real estate investing for the average investor is a very new concept.

What happens if I need to sell my shares?

Fundrise expects investors to hold shares for at least five years.

Luckily, you do have the option of selling shares before then if you need to.

Investors can request share redemptions from Fundrise on a quarterly basis. Except for the 90-day guarantee window, sales are based on the current market price.

We need to note, however, that there are fees associated with selling before a five year holding period.

• Within 90-days of initial investment, Fundrise will buy back your shares at your original cost.
• Shares held 90 days to 3 years are sold at a 3% discount to the current price.
• 3 to 4 years are sold at a 2% discount.
• 4 to 5 years are sold at a 1% discount.
• There is no fee for selling shares held for over 5 years.

It is important to consider that this is a request to sell your shares, not a guarantee. Fundrise sets a certain amount of cash aside each quarter to handle share redemptions. If requests exceed that limit, the company may not be able to honor all requests.

This is important because we have never seen how Fundrise performs in a downturn. If investors all request redemptions at one time, it could cause a bank run on the platform.

You will still have the asset value of the real estate backing your shares, but if Fundrise has to sell an asset quickly or at an inopportune time to honor redemptions, it could significantly impact returns.

An influx of redemption requests has shut down hedge funds and private equity funds in the past, and it is a risk here.

Are there any hidden fees I need to know about?

Unfortunately, yes. Our Fundrise review would not be complete if we did not share all fees involved.

Fundrise is upfront about their 0.85% asset management fee and 0.15% advisory fee. But the other fees? You’ll have to dig through the offering circulars filed to find them.

Non-traded, private REITs like Fundrise are complex and have underlying fees that come up in the course of business. Quantifying the impact of these fees is difficult because it depends on the activities of the fund over the course of time.

Fees associated with setting up a new eREIT or eFund can amount to 0% to 2% of the money raised from investors.

You may experience development fees of up to 5% of total costs, excluding land, in eFunds that are building new properties. And there are fees when Fundrise sells property from an eFund.

Overall, Fundrise’s fees are roughly 10% of those charged by similar non-traded REITs. This is somewhat comforting, as the SEC has shown that just up-front fees at non-traded REITs can often consume up to 15% of an investor’s initial investment.

Before investing in Fundrise, or any non-traded REIT, take the time to read the Offering Circular for the fund and the SEC’s Investor Bulletin on the topic to understand the potential fees and risks.

Who Should Invest with Fundrise?

Fundrise can be great for investors who have a long-term outlook and are comfortable tying up their investment for several years. While you can sell your Fundrise shares inside the 5-year holding period, fees will apply.

It’s also ideal for investors who want to diversify beyond stocks and bonds without getting into the hands-on nature of real estate. With Fundrise’s eREITs and eFunds, even the process of selecting assets is out of your hands.

And finally, you have to be comfortable with the risks. Keep in mind that this platform and investment methodology has yet to be tested in an economic downturn such as the housing crisis in 2007-’08.

Related: 18 Passive Income Ideas to Build Wealth Around the Clock

Fundrise Review Summary

Fundrise’s technology brings private real estate investing, and the potentially higher returns, to investors in an easy-to-use platform.
However, the simple packaging and optimistic future return projections featured prominently on the site may lead some investors to overlook the higher risks associated with such an investment.

These risks are buried in the 200+ page offering circulars filed with the Securities and Exchange Commission for each of their nine investment plans.

Higher potential returns come with higher risks. Don’t invest in Fundrise without taking the time to understand the long-term commitment you’re making.

Check your asset allocation to ensure that you need more real estate exposure. Be sure to include your home and any publicly traded REITs.

If you’re a risk-averse investor that gets queasy watching the ups and downs of the stock market, this probably isn’t for you.

But if you are positive on the long-term outlook for commercial real estate and urban housing, want to diversify beyond stocks and bonds, and are willing to take the associated risks in hopes of achieving higher long-term returns, Fundrise is an easy-to-use and well-developed offering.

With Fundrise’s 90-day guarantee, there is no risk to signing up for a Starter Plan and testing the platform for your own needs.

Hopefully we have answer all of your burning questions in our complete Fundrise review. But if we’ve missed anything, please don’t hesitate to leave a question for us in the comments!

The post Fundrise Review 2023: Risks, Returns & How it Works appeared first on DollarSprout.