Are you getting the best rate of return on investment? Kiplinger’s Personal Finance Magazine annually discusses ways to boost your investment yield in its latest issue. I have to say that I am always pretty disappointed with their recommendations.
I love the magazine, but I didn’t really care for a list of mutual funds and Exchange Traded Funds (ETFs). But, I wanted concrete ideas on how to earn a 10% annual rate of return on my investments.
US Treasuries are earning less than 1% and money market funds are not fairing much better. Certificates of deposit are barely scraping by at 2% or so even for the longest maturities.
But, are these levels going to last? The stock market has returned an after of 8% annually over the past century. But, where can an investor find 10% when the market retraces or moves sideways?
Top 10 Ways to Earn a 10% Rate of Return on Investment
Here are 10 ways to earn a 10% ROI on your investments or maybe even more. Additionally, there are a few extra bonus ideas to help you earn a great rate of return on investments.
But, you don’t have to buy homes and rental properties to make a great ROI, there are several different crowd sourced real estate investment options that have a small minimum initial investment such as Roofstock, PeerStreet, and Fundrise. For just a few hundred dollars in many cases, you can now invest in real estate.
1. Easily Invest In Real Estate with Little Money
Real estate is a great way to earn over 10% rate of return on investments. I’m a big fan of becoming a landlord which I’ve talked about several times here on Money Q&A. While you need to run your numbers and do your research, you can earn a 10% rate of return on investments with your rents.
Roofstock is the #1 marketplace for buying and selling single-family rental homes. Roofstock has listings in over 40 markets across the US. 1 in 10 homes in the U.S. is single-family rentals (SFR), which equates to over 15 million households.
Single-family rentals are a stable asset class with considerably less volatility than stocks. Single-family rentals prices have remained almost perfectly uncorrelated with stock prices since 1971, with a correlation coefficient of only 0.07.
Their online marketplace empowers everyday investors to own cash-flowing income properties and build wealth through real estate. Roofstock makes it easy to invest remotely. Over 60% of their customers are buying a rental property located more than 1,000 miles away. With their market analysis, Roofstock provides research and data analysis to help you determine which locations meet your investing objectives.
Roofstock’s marketplace offers rental homes for sale in 40 markets and 21 states nationwide, and they are continuing to expand. Roofstock surpassed $1 billion of collective transaction volume within two years of its marketplace launch, making it one of the fastest-growing FinTech startups of all time.
And, their industry-leading Roofstock Guarantee empowers investors to buy remotely with total confidence. Their certified properties are inspected and come with a 30-Day, Money-Back Guarantee, so you can invest remotely with confidence.
PeerStreet is another great marketplace for investing in real estate backed loans. PeerStreet’s platform provides investments in high-yield, short-term loans focused 100% on real estate debt. PeerStreet is backed by American venture capital firm Andreessen-Horowitz.
Building a real estate portfolio with PeerStreet is simple. You can create your own portfolio of real estate loan investments, or you can allow PeerStreet to do the research and investing for you with automated investing capability. You just select a few custom parameters, and PeerStreet will place you into real estate loans automatically.
PeerStreet’s team of finance and real estate experts underwrites each loan using advanced algorithms, big data analytics, and manual processes to ensure PeerStreet surfaces high-quality investments. They vet originators and allow only experienced private lenders with great industry track records onto the platform.
Those originators run their own due diligence process to hand-select the borrowers to whom they’re willing to lend. This creates higher quality loans in greater quantity. So, you can invest with confidence.
As one of the few companies offering high-quality real estate investments to everyday investors (any U.S. resident over the age of 18 can participate), Fundrise is truly a unique platform with impressive figures to its name, including: 80,000 individual investors, $3 billion worth of real estate in its portfolio, and 4.98/5.00 star review average with the BBB.
To determine whether investing in homes, office buildings, and other investment properties is a good option for your own portfolio, here are some things to consider about Fundrise:
How is Fundrise Unique?
Instead of saving tens of thousands of dollars to invest in your own property, Fundrise lets starter investors begin with just $500 (or $1,000 for an “advanced portfolio”). Fundrise supports many different investment accounts, including personal, joint and some entity accounts (e.g., trusts, LLCs, C corporations, S corporations). You can even invest money using funds from your IRA account!
But what makes Fundrise truly unique is that they were the first company to offer low-fee, diversified real estate investments for the average person (rather than limiting expensive real estate to institutional investors with millions of dollars to splurge on high-yield investments). Whereas individuals were previously limited to stocks, bonds, and mutual funds, Fundrise makes it simple for individuals to access private market real estate, which has historically performed better compared to public investment options.
Investing in Real Estate
According to Forbes, public stocks typically underperform private investments. This is due to the fact that public stocks come with an auction liquidity premium, which means you’re paying approximately 20-30% more for an asset simply because you purchase it through a public market rather than a private market.
With Fundrise, an asset class that was once limited to the richest investors is now readily available to everyday investors who simply want to increase the rates of return on their investments. The company has essentially cut out the middleman and offers high-quality real estate opportunities to investors who want to diversify their portfolios beyond what is currently available in the public marketplace. You can invest in some of the many properties Fundrise manages – without the exorbitant expense that comes with traditional investment management, thanks to technology.
What is eDirect Investing?
Fundrise’s eDirect technology combines secure, cloud-based software with investment and programming professionals to create an autonomous investment platform. Referred to as “full stack financial integration,” this Fundrise technology is incredibly advantageous for investors because it offers greater affordability and efficiency in comparison to traditional advisors and fund managers.
Fundrise also abides by SEC regulations, offering utmost transparency for its investors through annual audits and consistent financial reports made public. The company estimates their eDirect investment technology produces an average of 4.1% greater returns on investments in comparison to other forms of technology-driven capital formation, which suggests Fundrise is an excellent alternative investment to protect your portfolio from market swings.
Investment Plan Options
Fundrise offers three primary investment plans: supplemental income, balance investing, and long-term growth. Each plan comes with its own unique advantages, such as the supplemental income plan’s dividends-driven, private equity strategy, or the growth-oriented strategy that prioritizes equity real estate assets that appreciate in value over time.
Fundrise is completely transparent about its investment options and includes vital information to help you decide which plan is right for your investment needs, such as the average age of investors with that particular plan, its popularity among Fundrise users, and the average dollar amount individuals have invested in those plans. Once you decide on a plan, you’ll get access to a full range of data, charts, graphs and other informative resources to help you track your portfolio’s performance and reallocate funds, as needed.
Should You Invest with Fundrise?
Fundrise presents an incredible opportunity for investors who want to jump into the real estate market without having tens or hundreds of thousands of dollars to invest upfront. The tech-driven platform is also ideal because you don’t have to put much effort into managing your investments and you can save money with the low-fee structure compared to traditional investment advisors.
Ultimately, if you want higher returns on your investments, highly efficient portfolio management, and access to quality, diversified investment options in the private real estate market, then Fundrise is your best bet.
Real Estate Investment Trusts (REIT) are another great option if you do not want to own real estate directly. REITs are required by law to distribute a majority of their earnings to their shareholders in the form of dividends. These payouts and real estate’s impending comeback make REITs an attractive alternative to help investors reach the 10% threshold.
Investors can browse many different types of real estate investments. And, qualified investors can start with as little as $5,000. There’s a wide variety of property types, returns, and locations to invest in for investors.
2. Paying Off Your Debt Is Like An Investment
Paying off a debt with a high-interest rate is the same as having earned that exact same rate of return on investments would have given you. It is all about opportunity costs. In fact, that’s also what I recommend people do with a pay raise as well. It is all about the best opportunity for you to put your money to work for you.
For example, if you have a credit card with a balance that is charging you a 16% interest rate, paying off that debt would be the same as having invested and earning that 16% on the investment. Paying off high-interest debt is a great way to earn a stellar rate of return.
3. Stocks For The Long-Term
Make investing in stocks for the long-term automatic. It’s easy to up automatic investments either with your bank, a discount broker, or even a smartphone app like Robinhood. Put money away every month, when time are good and times are bad. Avoiding investing mistakes will make you more money in the long run than trying to pick the hottest sector/stock/fund/investment over the years.
With the help of a Financial Planner, you can pick a well-diversified investment portfolio appropriate to your financial situation and the amount of risk that you are willing to accept. Granted, you may need to take on more risk if you want that 10% rate of return.
Most of us are a victim of recency bias. An entire generation of investors has only known the stock market of 2003 to 2013. Our most recent past is not a precursor to what our long-term investing future will be. A 10% annual rate of return on investments over the long term is very much achievable.
The newest robo-advisor on the market called M1 Finance gives the more established, sophisticated investors great investing options. M1 Finance simplifies the investment process for beginning and experienced investors alike. Unlike other robo-advisors, M1 Finance does not charge a fee, and it gives you the option of taking more control over your investments if you want them (and less if you don’t).
4. Short-Term Stock Trading
Granted, short-term stock trading is not for everyone and should not be done with a large portion of your entire investment portfolio. Trying to time the stock market is a rough way to earn a 10% rate of return on investments, but it could be well worth your time and efforts with a small portion of your investment portfolio.
I’ve been having a blast trading stocks on a short-term basis. And, even better, I’m up 15% over the course of the past 12 weeks. That’s a lot better than 10% annualized of course.
Many swing trading services teach investors how to, not day trade, but invest in small cap stocks which are held only a few days or weeks. You can follow along as the service trades their own portfolios, mirror their trades, and learn the ropes of short-term technical analysis trading. I was skeptical at first, but I have actually really enjoyed getting back into stock trading. It also doesn’t hurt that I’m up, of course!
5. Starting Your Own Business
I am a huge fan of starting your own business. I wish everyone would have the entrepreneurial spirit. It was one of the best ways to earn a 10% rate of return on investment. Whether it is opening a neighborhood restaurant or as simple as starting a blog, a business venture is a great way to boost your investments’ returns.
6. Art And Other Collectables Like Legos Can Diversify Your Investments
Good art, great collectibles, or even quality antiques as a whole are safe investments that tend to grow in value at as good as or better rate than almost any other investment. Plus they–unlike stocks or bonds–have the added bonus of your being able to enjoy them in your home on a daily basis.
Collecting Legos returned more than investing in large stocks, bonds, and gold over the three decades ending in 2015, per a recent study from economists. Collections for Jedi starfighters and Hogwarts castles, for example, have yielded 11% annually.
Legos aren’t exactly exposed to market-roiling volatility. Plus, there’s an enormous secondary market for Legos, in which “tens of thousands of transactions per day” take place. For example, a Lego kit for Star Wars Darth Revan retailed for $3.99 in 2014 and sold for $28.46 on eBay a year later. That’s a 613% premium.
Newer sets have higher returns than older sets. The higher value is possibly due to the growing popularity of Legos becoming an investment. And, “The Lego Movie 2: The Second Part” hits theaters in February 2019.
Did you know art has outperformed the S&P by 250% since 2000? Or that 88% of wealth managers recommend investing in art? If this sounds like your kind of investment, Masterworks lets you buy shares of high-end art.
I love finding gems like these in amazing newsletters like Morning Brew!
A 5-minute read that’s informative, witty and free? That’s Morning Brew — the daily email that delivers the latest news from Wall Street to Silicon Valley. Sign up for free.
7. Create A Product To Boost Your Rate Of Return On Investments
Robert Pagliariri wrote one of my favorite books, “The Other 8 Hours“, where he talked about becoming a creator. It is not enough to simply work a 9 to 5 job and hope to become rich. It unfortunately just does not work that way.
Those who are more successful than most are creators. They create businesses. Products create products. They make things people want to buy. That’s how you can earn a 10% rate of return on investments.
8. Junk Bonds
Junk bonds offer higher interest rates and lower rates of volatility that individual stocks might experience regular market fluctuations. Perhaps the entity issuing junk bonds is trying to grow its company and offer more sustainable, long-term growth for investors but it’s presently struggling with consistent revenue in the process. While these bonds are considered “noninvestment grade” bonds, there is still a variety of types to choose from, such as Standard & Poors bond ratings of BB, B, CCC, CC, C, and D.
Junk bonds are simply high yield, higher risk bonds from companies who have seen their credit ratings suffer from the rating agencies like Moody’s and Standard and Poors. Junk bonds typically have a rating of BB or Ba or less depending on whose scale you use.
The Barclays US Investment Grade Credit Index, which tracks high-grade bonds, returned 1.63% through April of this year. The safest grade junk bond is earning 5% interest annually with less safe options earning a rate of return more than that. While 10% may be the riskiest of all junk bonds, it is still possible with some to earn that much.
9. Peer-To-Peer Lending Has a Great Rate of Return on Investments
Peer-To-Peer Lending through companies like Prosper and Lending Club are my favorite way to earn a rate of return on investment over 10% annually. Lending Club’s most conservatively A rated loan earns over 6% for the investor. It does not take long or much more risk to earn over 10% returns. And, Lending Club’s most risky investments earn a rate of return on investment of over 20% annually.
10. Master Limited Partnerships (MLP)
Master Limited Partnerships are a type of business organization. There are two different classes of partners for master limited partnerships. They are limited partners and general partners. You need to know about these classes when looking to invest. The limited partners purchase units in the business to provide capital for the business and receive income distributions. The general partner is responsible for managing the business and receives income on a compensation basis.
Master Limited Partnerships are commonly found within the energy industry. And, they are very attractive to investors because they offer a stable income based on long-term service contracts. These contracts can range from the provision to the management of oil or gas pipelines.
Master Limited Partnerships are partnerships that trade like a stock. They are risky and not for every investor, but they can often offer a larger rate of return than other investments. Many MLPs invest in the energy sector, minerals, and other raw material type ventures. They often have a high yield because they do not pay income taxes themselves and pass on that responsibility to their shareholders.
How Master Limited Partnerships Differ
One of the primary ways that Master Limited Partnerships differ from a corporation is the fact that it is considered to be an aggregate of the partners and not a separate legal entity. One of the distinguishing features of these partnerships is the tax benefits of the partnership. The profits from the company can only be taxed when the unitholders receive distributions. The liquidity of the company is the same as any other type of publically traded company.
Master Limited Partnerships are often used in slow-growing industries such as the energy industry. As these industries are slow growing they offer a lower risk to investors. Of course, you need to consider the fact that any industry can have volatility so you should look into this before investing. The steady investment will bring a steady cash flow through distributions.
Benefits of Master Limited Partnerships
The cash distributions generally grow faster than inflation and when bought by limited partners can be 80% to 90% tax-deferred. The business will also avoid double taxation as there is a pass-through where the business passes the income to the unitholder which means that there is more capital for future projects.
Another benefit for limited partners is that cash distribution generally exceeds capital gains tax when all units are sold. However, the sale of the units will not be taxed as ordinary income.
Honorable Mention Investing Ideas
Extra Idea #1 – Investing In Silver and Other Precious Metals
Precious metals can be a great alternative investment for your portfolio to help you earn a great rate of return on investments. Like most investments on this list, you should consider investing in gold, silver, and other precious metals with a small percentage of your total investment portfolio.
I personally love to invest in silver. It is more volatile than gold, and the potential for upside is greater to help you earn that 10% rate of return on investments. You can even invest in precious metals in a gold or silver IRA through an investment company. Year to date (YTD), silver is up over 36% from $13.81 to $18.83 per ounce.
Extra Idea #2 – Invest in Poker Players
Individual investors can buy action from professional and amateur poker players. And, staking poker players can earn investors a great rate of return. Investors put up a part of the buy-in in exchange for a one-time part of the winnings. There are a couple of ways that individual investors can get involved and invest in poker players.
If you’re an average or intermediate individual investor with a love for poker and want to invest in poker players, there are a couple of online forums or bulletin boards that can help you find players looking for investors. Check out a couple of the other options that let you easily invest in poker players.
Extra Idea #3 – Invest in a Movie
I think it’s such a cool idea to invest money in a movie. And, now it’s a reality for investors! The United States Motion Picture Company, an independent film company, is doing something that has never been done in the U.S. until now – equity crowdfunding for a full-length narrative feature film with profit sharing for investors. Not just any feature film — the world’s first Christmas movie to raise funds through equity crowdfunding.
If you’re interested in passive income and movies, well, the United States Motion Picture Company has just merged the two together. Equity crowdfunding is like Kickstarter but instead of getting a t-shirt for your money, you own a piece of the movie and earn an income from its profits! To learn more, please click the link below to go to the United States Motion Picture Company’s campaign at the SEC-registered funding portal.
Extra Idea #4 – Closed-End Mutual Funds
A closed-end fund is very similar to a traditional mutual fund. These funds pool assets in a portfolio and offer shares through an initial public offering (IPO). The closed-end fund is then listed for trade on a stock exchange like the NYSE.
Many investors like closed-end funds because of their relatively high distribution rates. Without capital inflows and withdraws from investors like a typical open-ended mutual fund, closed-end funds can often invest in riskier assets and pay investors relatively high yields. These funds can also use leverage, which can boost the portfolio’s income on a NAV basis.
Many closed-end funds have a distribution rate of more than 6% of net asset value. Combining their distribution rate with the increase in their share value helps investors earn a high rate of return for a total return.
What do you think? Did I miss any good ways to earn a 10% rate of return on investment? How do you get the best return on investment? Let me know in the comment section below.