Investing for dummies

Alternatives to traditional stocks, bonds and mutual funds

Ipad

Markets have jumped and plummeted with heart-stopping frequency over the past decade, and recent estimates suggest that earnings are in for a long, slow slog.

The likely return on investments in the S&P 500 is at the lowest point it’s been in a century, according to a recent analysis by John P. Hussman, president of the Hussman Investment Trust. Most experts still say traditional stocks, bonds and mutual funds are the safest way to plan for the future. However, there are alternatives.

Startups

When Stevenson resident Ken Levy founded 4-Tell, a provider of personalized product recommendation software for ecommerce companies, he didn’t turn exclusively to Wall Street or Silicon Valley to fund his startup. Instead, he turned to angel investors from across Washington and the Portland area that pooled their resources to fund the business. If Levy is as successful as he hopes to be, those early investors will bring big returns to local people.

The safest ways to invest in local startups have a high barrier to entry. For instance, Keiretsu Forum Northwest carefully vets investors, who must pay a $3,000 annual membership and often see minimum investments set at $50,000. Even smaller groups like the Gorge Angel Investor Network and the Portland Angel Network often require investors to have net worth of more than $1 million.

Changes to investment law are starting to make it easier for small-time investors to get in the game, though, through crowd-sourcing websites like Fundable and Kickstarter. These sites allow investors to pledge a few hundred dollars – or even considerably less – to support companies they believe in.

Without the careful vetting that a larger network offers, experts say these startups can be risky bets.

“The public needs to understand startups aren’t an easy investment,” Fundable founder Wil Shroter said during a Washington, D.C., presentation covered by the Upstart Business Journal. “If everything goes extremely well, in seven years, you might get your investment back.”

Or you might not.

“Studies show that people who individually invest without going through this type of group situation are likely to lose all their capital,” said Vancouver business development advisor Kathy Sego, a member of Keiretsu Forum Northwest. If you don’t qualify to join an angel investing group, she advises against going it alone.

Education

Paul Nipper, a founder of the Occupy Longview and Occupy Cowlitz County groups, is frustrated that financial investments are out of reach for many people. But he’s a strong believer in putting money toward education, and keeping that investment affordable.

“If people invest in their own education and engage in the fight to keep their schools funded, that’s going to have a benefit for them and their communities,” Nipper said.

Even if you disagree with Nipper’s political leanings, the data backs up the value of an education. People with a four-year college degree are three times more likely to have jobs than people who haven’t finished high school, and make twice as much as peers with less education, according to federal labor data.

Not every degree is equal, so it’s important to research job prospects to balance the cost of schooling against future earnings. The four-year price tag of a degree at Washington State University is now approaching $50,000. That may seem like a daunting sum, but it’s likely to boost its graduates’ lifetime earnings by more than $2.8 million.

Real Estate

Now that prices seem to have bottomed out, real estate is also starting to look attractive again.

Vancouver-based Holland Residential is in the midst of investing $1 billion in housing throughout the Western U.S. Many Southwest Washington speculators have been buying entry-level homes to lease while the rental market is tight and sell when property prices improve.

You don’t have to have deep pockets, if you’re willing to turn to financial instruments. Real estate investment trusts – or REITs – are a kind of stock backed by property instead of by a business enterprise. Because they often collect rent, dividend payments can be high. If property values climb, so should the value of an REIT.

Brad Thomas, who writes about investing for Seeking Alpha, says that people should see REITs as a long-term investment. He also says that not all REITs are the same – they hold different kinds of real estate, in different regions, and some take on more debt than others. Financial publications like Money magazine periodically offer REIT recommendations, or an investment broker can help you navigate your options.

At times, high returns are not an investor’s only goal.

Kathy Sego and her husband started Sego’s Herb Farm as a labor of love and an expression of their values.

“We are profitable, but not materially so,” Sego said. “It’s not creating enough revenue that I could quit working. But I believe in spending the time and energy to do things that create a positive impact. Our farm supports five families. We are producing a high-quality product. It’s something that we are proud of. It’s added to our quality of life.”

Comments

comments