Small-scale investors are not limited to a handful of familiar options. These days, online platforms offer private individuals the chance to step into the same financial arenas as the biggest global financiers. Here are five attractive investing opportunities for you to explore.
1. Real Estate Investment Trusts
As an investor in a real estate investment trust (REIT), you can profit from rising real estate prices while still keeping your investment liquid. (A liquid investment is one that is relatively easy to sell.) Your purchased office building might increase in value, but selling it would be complicated and time-consuming if you need to withdraw your money. REITs are securities which own or invest in commercial real estate; you can buy and sell shares in them like stocks on the major exchanges. Some REITs pay dividends to their investors, usually every three months. There are many kinds of REITs available, so it is important to do your homework before investing.
2. DRIP (Dividend Reinvestment Plans)
Offered directly by corporations, these plans allow investors to apply their stock dividends immediately toward the purchase of additional shares. These reinvestment purchases are generally offered at a discount from the normal share price for the company’s stock, and buyers are not charged any commission for the transaction. You should research any stock purchase carefully and make sure you have faith in the company’s financial future, but remember that your potential dividend reinvestment plan provides unique benefits. Dividends are automatically diverted into buying more stock, so purchases aren’t subject to your emotional responses to the market’s short-term volatility. Additionally, this type of program allows you to buy fractions of stock shares, which you are not able to do on the open market.
3. Exchange-Traded Debt (ETD)
ETDs, additional investment options in private corporations, are available for purchase on the major exchanges. Furthermore, they are offered in $25 increments, making them accessible to even the smallest investors. Structured like notes and bonds, ETDs pay quarterly interest payments. These payments are usually set at a higher rate than the yield of the company’s common stock; between 6 percent to 7 percent annual rates are typical. There are a few tricky details to learn before you buy ETDs: they usually take between 10 and 30 years to mature, and they can be “called” early by the issuing company. This means your investment and the future interest you were anticipating can disappear, and you are left with your original starting amount of cash.
4. Tax-Free Bonds
Tax-free bonds are offered by public entities (states, counties, cities, school districts, airports, etc.) that need to raise money for special projects. Since they represent less risk than stocks and corporate bonds, municipal bonds also pay a lower interest rate. However, this interest rate is higher than you’d realize from CDs and savings accounts, and the most important benefit is that all interest you earn from municipal bonds is exempt from federal income tax. In some cases, the interest is also exempt from state income taxes. These types of bonds are easily traded at any time, and this liquidity allows small-scale investors to participate safely in this market.
If you have a taste for risk and adventure, you might enjoy putting a small portion of your available funds into commodities. The word “commodities” refers to raw products of the earth: metals, crops, livestock, petroleum products, and so on. To make this kind of investment, you must open a brokerage account and then invest in a “futures contract.” This is an agreement to buy or sell a certain amount of these raw materials for a set price at a future date. Obviously some study is needed before venturing into this arena. It is important to be aware that shifts in supply and demand can cause you to lose or double your investment virtually overnight. Even seasoned investors recommend capping commodities investments at about 5 percent of your portfolio because of the risk involved.
Experimenting with some new investment opportunities allows you to earn a good return on your investment, diversify your portfolio and learn a lot about the financial world at the same time.