While we are still basking in the possibilities of the new year, I hope you will use 2013 as the year to get serious about investing. Start by studying some basic ways to diversify your money. We all know it isn’t wise to put all of our eggs in one basket. With the ups and downs of the economy over the past several years, we’ve seen how various investments can soar and/or hit rock bottom faster than a Hollywood marriage. It’s almost enough to make you want to hide your money under the mattress, but the wise investor knows that the key to minimizing risk is to be well diversified. Obviously, most people know that you should have a mix of stocks, bonds, and cash to suit your risk tolerance, but what about alternative investments to round out the portfolio? You can check out a certificate of deposit calculator to find out the benefits of other investments. While there are many options, precious metals, real estate and peer to peer lending have been on the radar in recent years. Which, if any, should you choose?
A way to diversify is to invest in precious metals like gold and silver. We’ve seen the value of gold increase to the point that people are cleaning out their old jewelry to take to the pawn shop. If you don’t have the $600,000 or storage capability to purchase a 400 ounce gold bar, you can use a service like Bullionvault that sells small quantities of gold or silver. Investors can get started with as little as $100. Another advantage with this type of investment is that it can be sold quickly if you need to cash out.
One good thing about the down turn in the economy is the ability to find amazing real estate deals that can be purchased at some of the lowest interest rates in history. We took the plunge in 2012, and purchased our first residential rental property. From my experience, it isn’t easy to become a landlord. You need to research property values, rental potential in particular neighborhoods, and make sure that any property you are considering will provide adequate cash flow. You have to have enough money for down payments and to cover expenses or mortgage payments if you don’t find a tenant right away. If that all sounds like your idea of fun, it might be the year to start looking for an investment property.
If the thought of tenants keeps you up at night or if you don’t have the funds to purchase a property, you can invest in a Real Estate Investment Trust or REIT. REITs sell like stocks on the major exchanges and offer a way for investors to hold real estate investments without buying actual properties in the traditional sense. REITs also offer better liquidity as you can sell your holdings much faster than trying to list a house or property for sale.
Peer to Peer Lending
Peer to peer lending has been around as long as there have been businesses with sellers who carry the loan for buyers. When you act as the bank, you can command a higher return on your investment than you might find in traditional stocks or bonds. Average investors can now enjoy this type of return without having to own and sell a business or put up large amounts of money. With several online services, you can choose the type of loans you want to fund and how much you want to contribute toward each loan. Potential borrowers are rated as to their credit worthiness, and loan rates increase with more risky loans. With traditional commercial bank financing unobtainable for many, peer to peer lending can work well for both borrowers and investors.
As with any investment, before you spend one dollar, please determine your risk tolerance, and research which investment vehicles will accomplish your goals. Never choose or pass on investments because someone else did it that way. Hopefully, by looking at different options like precious metals, real estate, or peer to peer lending, you can diversify your portfolio so that it can weather the ups and downs that inevitably occur.
What investments have you chosen for diversity? Would you pick a gold bar or a duplex if offered one or the other for free?