Investing with Limited Funds

If you are not a seasoned investor—or if you have never invested at all, you may be under the impression that in order to invest you must have large amounts of capital to do so. Of course, depending on what asset you are eyeing, this may very well be true. However, even sophisticated investors don’t put all their eggs in one basket. They may have more capital to acquire lucrative assets, but they also understand that they can invest in assets using smaller funds. And often, in the name of diversity, they do. So, regardless of your level of expertise, it is possible to begin investing with limited funds.

So, how do you go about investing with limited funds?

There are many different, inexpensive assets available if you know where to look. You also have the option to pool funds with another investor to alleviate the financial burden of investing on your own. This is true for those using personal funds and also for individuals who want to use their retirement funds to invest.

Side note: Many individuals clearly understand what investing with personal funds means. And even though self-directed retirement plans are becoming more popular, a lot of people don’t understand what these accounts are and how incredibly beneficial they can be in building tax-sheltered income for retirement.

Self-directed plans are different than the typical retirement plan in that instead of relying on a broker to choose investments—the account owner (you!) is the one who controls his or her retirement funds and investing decisions. The primary benefit of self-direction is that you gain the freedom to choose from a large pool of alternative investments (real estate, precious metals, private lending options, crowdfunding, and more). You aren’t limited to the average stock, bond, or mutual fund—although these assets can certainly be held in self-directed plans.

Now, back to investing with limited funds. Whether you’re investing with personal or retirement funds, it’s entirely possible to invest in assets that won’t break the bank. All of the examples provided below are just a few alternative assets you can consider when investing with limited funds, and all are permissible in self-directed retirement plans. Keep in mind that if you’re investing with retirement funds, all assets are owned by the retirement account. All income flows directly into that account on a tax-sheltered basis, and all expenses related to the asset must be paid using funds from the retirement account.

Investments that don’t require a big bank roll to acquire

Real estate investment trusts (REITs) allow a large number of investors to buy into several different assets that garner returns over time through the property appreciation and/or rental income. Because REITs involve multiple investors and multiple assets, they offer ample opportunities to invest using smaller amounts of cash. To learn more about investing in REITs, read this article.

Treasury securities are considerably conservative assets that have assigned maturity dates that can be 30 days or up to 30 years. Typically, your principal is protected from downturns in the market. But, if you invest in treasury securities with longer maturity ranges but sell before the terms are up, you face the potential of that affecting your principal investment.

Tax liens and deeds provide inexpensive opportunities for investors to potentially garner quick returns on investments. For example, you or your IRA can purchase a tax lein for a mere thousand bucks or two and earn income in two ways: interest on the repayment of the note and/or income on the sale of the property you gain ownership of in the event the payee defaults. You can purchase a tax deed for around the same cost, maybe a bit more, and this gives you ownership of the property. You or your IRA can spend a bit on renovations to fix the place up (or not) and sell it for a larger profit than your initial investment.

Private equity or private stock can also be an inexpensive way to invest. For instance, Advanta IRA had a client recently who purchased one share of stock in a private company for $12,500 and received one warrant for that share. A year later, that company went public and offered owners additional warrants for their shares. The company proved profitable and the next year, our client sold her stock for about $126,000—about ten times the cost of her initial investment.

Partnering funds is another way of investing with limited capital

Partnering funds offers another option of investing with limited funds. This is a popular method owners of self-directed retirement plans use to reduce the financial burden of investing in lucrative assets. However, you can also partner funds to invest in assets that aren’t too expensive, but that have the potential to be successful and produce a great return.

Your retirement plan is able to partner funds with your personal funds, or those from another person, IRA, or entity. Income and expenses related to the asset are assigned by the percentage of ownership of each partner. For instance, if you or your IRA owns 50% of an asset—you or your IRA is entitled to 50% of the income derived from the asset, and you’re also liable for 50% of any debt incurred.

Hopefully, this information has given you a few ideas that will empower you when considering investment options. The main takeaway is that you don’t have to be filthy rich to invest in viable assets to build income, whether you’re seeking personal income or options to boost the earning potential of your retirement portfolio. You have goals. You have a dream. Neither has to be stifled because you have a small amount you can invest. Investing with limited funds is possible—and can help you reach your goals and realize your dreams. Contact us to get started.

About Jack Callahan

Jack proudly earned his bachelor’s degree in finance and multinational business from Florida State University and his law degree from the University of Florida College of Law. He established Advanta IRA in 2003 and has steadily nurtured and grown the company and the team every year since. Prior to founding Advanta IRA, Jack delivered specialized counsel to real estate investors, small business owners, and real estate professionals on tax, legal and financial matters. As an industry expert, Jack is a frequent speaker on self-directed retirement plans. He is an accredited continuing education instructor for the Florida and Georgia Bar Associations, Florida and Georgia Real Estate Commissions, and The American Institute of Certified Public Accountants.