When we are investing, we have choices where to put our money. Usually, the first option stocks; it is pretty easy to get started, but many alternatives exist. Lately, cryptos have been so popular in the news that they have seen significant increases, but are they safe? You have probably heard about multifamily syndication real estate investing, but how does it compare to other investment options? This article will answer all of these questions and explain why they complement each other.
Stocks
When we think of investing, stocks are by far the first thought. Every night we hear about the Dow, S&P, and Nasdaq results. Between the NYSE and the Nasdaq, there are over 5,000 listed companies. So, where does one begin? One important concept to know about for all investing is diversification. Successful investing relies on diversification, which means you are better off buying many companies than trying to pick and choose the best ones. Even Warren Buffet, one of the most successful investors ever, suggests a diversified fund for passive investors. Even fund managers making millions in investing can not beat a diversified fund over time.
Pros of Investing in Stocks
I. Stock returns have averaged 8% to 10% annually over the past few years. This investment return enables an investor to accumulate substantial wealth.
II. Quite easy to invest. One can opt for low-fee, broad-market index funds, like those that track the S&P 500 for investing.
III. You can start with little money. You can start investing with a few shares of an index exchange-traded fund (ETF), like the SPDR S&P 500 ETF. Continued investing increases the size of the investment.
IV. High liquidity. Stocks are bought and sold daily, that is, Monday to Friday. One can decide to trade a stock depending on the urgency of their financial needs.
Cons of stock Investing
I. High volatility. The life of a stock investment experiences many corrections and crashes.
II. Returns are not guaranteed. You may fail to get returns over a given investment period as expected.
III. It takes time. It generally takes longer periods to make substantial returns on stock investments, not days or weeks.
IV. You can lose a lot of money. Due to the volatile nature of stock markets, investors are prone to heavy losses depending on the length of a market crash or an investment mistake.
Cryptocurrency
Cryptos are a new investment, and some have done well over the years, but trading them is an exercise in gambling. There are currently over 6,800 different cryptos, and like stocks, you are probably best off allocating a smaller portion of your portfolio, buying a basket of the top 10 or 20 cryptos, and ignoring the rest, which is aptly named “Sh*tcoins.”
Pros of Investing in Crypto
I. Limitless trading. Cryptocurrency markets have no centralized governance hence 24 hours trading. The transactions occur between individuals all over the world.
II. Ability to go long and short. You can take advantage of markets that are falling through buying and rising markets through selling.
III. Leveraged exposure. A contract of differences (CFD) trading is leveraged in nature, enabling you to invest in a fraction of the trade’s full value.
Cons of Investing in Crypto
I. High price volatility. The crypto market is highly volatile, resulting in extreme losses.
II. Cybersecurity. Cryptocurrencies are exposed to cyber-attacks and may fall into the hands of fraudsters.
III. Scalability.
Multifamily Syndication
Multifamily Syndication allows you to diversify your portfolio further beyond stocks and cryptos. Real estate can take advantage of leverage, only investing a portion of the property price, paying low-interest rates, and getting all of the return from appreciation and rental cash flow. With Syndication, you can participate in larger deals that you would not be able to afford on your own. You can also spread your investment capital across several syndication deals to further diversify.
Pros Investing in Multifamily Syndication
I. You get to choose the project you invest in. With REITs or Real Estate funds, you turn your money over to managers making decisions for you. Do they have your best interest in mind?
II. You don’t have the headaches that come with real estate investment, also known as “The Three T’s” Tenants Toilets and Taxes; the sponsor deals with those. You are not putting your hand in your pocket, always paying for repairs or other nuisances that are usually part of property ownership. Perfect for a busy professional who can focus on what they do best.
III. Consistent cash flow. Investing in multifamily syndication guarantees income remittance at agreed periods of the investment life and at the sale of the property.
IV. It is a proven source of income. The sponsor can outsource property management and marketing services and still generate constant profit to channel to other investors.
V. Better growth potential. The property gets consistent appreciation over time and eventually becomes profitable at the sale with proper management.
VI. Diversification. The large pool of funds created enables the sponsor to invest in multiple properties or profitable high-end real estate properties that you could not afford as an individual.
VII. Time and financial freedom. The sponsor oversees all the purchase and management responsibilities with multifamily syndication. Your presence as a passive investor is not necessary to run the property. You can achieve financial freedom through consistent income cash flow.
VIII. Minimal risk factors. Generally, real estate is considered a safe harbor for investment. Investing in syndication ensures a large capital base, reducing the chances of additional financing through loans.
IX. You enjoy several tax benefits that come with real estate investing.
Cons of Investing in Multifamily Syndication
I. No liquidity. The money invested is tied the whole time, usually five years, depending on the terms of the syndication deal.
II. You have limited options for selling your shares.
III. You have no control of the investment. You rely on the sponsor to make a profitable purchase and effectively manage the asset for higher consistent returns.
Summary
All three investment options can help you build a successful portfolio with proper diversification. They all have their place and have different attributes that make them worthwhile.
