You’re cash strapped and asset poor, but still like the idea of having some ‘skin’ invested in shares or property. What can you do?
Thanks to a plethora of affordable financial products to hit the market, it’s possible to invest into both of these assets classes, and you don’t even need a $100 to get started.
Here’s a beginner’s guide to three ‘next-gen’ investment vehicles that are levelling the playing field between rich and poor, and what you need to know to get started.
Peer-to-peer (P2P) loans
How they work: When you invest in these managed investment products you literally ‘become the bank’ (via a P2P’s intermediary platform).
Acting as an alternative lender to traditional banks, you allow individuals/businesses to take out more competitive secured and unsecured loans.
While P2P intermediaries charge a platform fee from the loan costs borrowers pay, plus an application fee, the remainder of the interest rate paid on the loan goes to you (the investor).
Once you’ve decided how much you want to invest, you can also decide how your investment (money) is used.
For example, based on their creditworthiness, you may choose to fund one particular loan or invest in a wider basket of loans. Alternatively, you may also be able to choose an interest rate and loan period that suits.
The money you lend is returned based on a pre-set repayment schedule. You can either have your capital paid back along with loan repayments or at the end of the loan period.
P2P lenders typically target returns of around 9 per cent-plus. But remember, the higher the interest, the higher the possibility for losses.
Key providers to check out: SocietyOne, MoneyPlace (aimed at more sophisticated investors) or RateSetter which targets all Australians. Then there’s Harmoney, ThinCats Australia, OnDeck, Bigstone, Marketlend, and listed company WISR (ASX:WZR).
Micro investing apps
How they work: Also known as ‘spare-change-investing’, micro-investing products are a user-friendly, low-entry way to get exposure to world of sharemarket investing, a few coins at a time, while also raising your financial literacy.
Leading digital platform Raiz (formerly Acorns) acts like an electronic coin jar for loose change.
By linking to your credit and/or debit cards, Raiz ‘rounds up’ the balance of your transactions to the nearest dollar.
Every time a certain amount ($5) is accumulated in your account, it’s invested in a mix of ASX-listed exchange traded funds (ETFs). You can withdraw all or part of your investment any time or transfer it into a Raiz super fund.
Like Raiz, savings app Carrott also rounds up loose change to the nearest dollar. But instead of investing ‘lazy cash’ in shares, Carrott is a payment gateway that lets you decide where every accumulated $5 goes – for example, a super account or loan – for a small fee.
While digital investment platform Spaceship Voyager doesn’t have round-ups, it still allows you to start investing directly (with as little as $5) in an ‘Index’ portfolio containing 200 of the biggest companies in Australia, plus a few globally.
How they work: Got a few dollars to spare? Fractional property funds take property assets and parcel them into tiny chunks – just like unit trusts – for you to buy.
One provider is a fintech known as BrickX, which buys a property, breaks it down into 10,000 “bricks” with an initial cost of around $100 or less. Once you buy BrickX, you get your (pro rata) share of the rent.
BrickX properties are valued every six months and you receive your share of capital gains once the property is sold, typically after five years or when you on-sell your bricks.
Then there’s rival Domacom Ltd, which pools investor funds to purchase quality properties with good capital growth upside. You can sell your units to other investors via the Domacom platform.
Another provider, CoVesta also lets investors target a property they wish to live in, and then finance it through their platform.
For example, a couple may be able to pay for half the 100 units that CoVesta divides the property into, with the remaining 50 units being offered to outside investors from the CoVesta platform.
To properly understand the risks, fees, returns and complexity of these innovative investment vehicles, seek the right advice first.