Currently, BankRate reports the best one-year bank CDs rates are 1.25%. The U.S. inflation calculator says that the inflation rate for the year of 2014 was 1.6%. This means leaving money in one-year bank CDs for 2014, caused investors to lose value because the reduced purchasing power of those dollars exceeded the bank interest paid on bank CDs.
As reported by a study done at NYU, the annual return on the S&P 500 stock index for 2014 was 13.48% and the average annual return for the years from 2005 to 2014 was 9.37%. That period included a huge disaster during the year of 2008 showing a -36.55% loss.
Because bank CD interest rates do not even keep up with inflation and the stock market is unpredictable, many investors are looking at alternative investments with a goal to meet or beat the S&P 500 stock index average. A nice goal is to achieve 10% or higher annual returns on investments, while at the same time managing the risks.
Crowdfunding offers investors many opportunities to earn 10% per year or more that were previously either unavailable or difficult to source.
Here are four investments to consider:
- Short term real estate loans
- Loans to small business with personal guarantees and/or liens against equipment
- Access to hedge funds with smaller minimum investment contributions
- Longer term real estate investments
I've made about 60 investments in the past two years. While a few of the investments have underperformed, most have been successful. In total, my investment portfolio returns are more than 10% per year.
Short Term Real Estate Loans
I find these loan investment opportunities on PatchofLand. They pay about 12% and the term is 6 to 12 months backed by real estate. These loans are mostly to fix and flip (re-sell) single-family houses. So far, I've done over 13 loans with no defaults and no late payments. The average return is 12%.
Loans to Small Businesses
I find these loan investment opportunities on Bolstr. The payback for the loans is about 2 years. The Internal rate of return (IRR) averages in the mid 20's. I've made five investments on this system. All are on track to have 20%+ IRR. Investors make 30% on their investment. The borrower pays back a percentage of their gross revenue. The deals are structured so that the borrower pays the investors back in about 2 years. For example, a loan of $10,000 to a microbrewery. They pay back 3% of their gross revenue until he gets back $13,000. Average payments per month have been about $650. The investment will be recouped plus 30% in 20 months providing an annualized Internal rate of return of over 25%.
Access to Hedge Funds
In the past, investing in some of the large, and best managed, hedge funds required a minimum investment of one million dollars. Through Slicedinvesting, investing in these hedge funds is now possible with a minimum investment as low as $10,000. Some of the funds have higher minimum investments of either $50,000 or $100,000. There are about ten hedge funds to choose from including short funds and peer-to-peer lending funds. The lending club fund paid over 10% for the past few years.
They can give you access to both traditional and alternative HF strategies, Private Equity, and late stage private company shares.
Longer Term Real Estate Investment
These are 1 to 5 year holds for investments in shopping centers, multi-family buildings, self-storage centers and other real estate. Typically, the IRR for these investments is in the 15% to 20% range with cash-on-cash returns in the 8% to 12% range.
The web sites where Mark has found good deals include:
The actual results of the real investments made through these three systems are reported on Mark’s blog here:
- RealCrowd investment performance results
- RealtyShares investment performance results
- RealtyMogul investment performance results
Summary
Investments that make an average 10% or higher annual return are readily available through these systems. Follow along with my progress as I report on actual investment results on CrowdDD.
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