Small Investments, Big Returns: 10X Your Money

There are many ways to make a 10% return on your investment, but it is important to remember that every investment carries a certain amount of risk. The lower the risk, the lower the potential return.

- Paying off high-interest debt: While this may not seem like a traditional investment, paying off debt with a high interest rate is equivalent to earning a high return. For example, if you have credit card debt with a 20% interest rate, paying off that balance is like receiving a 20% investment return.

- Index Funds and ETFs: Index funds and exchange-traded funds (ETFs) are baskets of stocks or bonds that provide diversification and reduce risk. With $10,000, you can easily assemble a diversified portfolio of low-cost index funds or ETFs. Vanguard's $VOO ETF, for example, allows you to own all the companies in the S&P 500 with a single investment, and it has averaged annual returns of 11.14% since 1950.

- Robo-advisors: If you prefer a more hands-off approach, robo-advisors offer complete portfolio management through computer algorithms that manage your investments according to your goals. You can expect to pay an annual management fee of around 0.25% for this service.

- Real Estate Investment Trusts (REITs): REITs are companies that own income-producing real estate and are required to distribute at least 90% of their income to shareholders. They offer relatively high yields and provide diversification benefits as they don't move in perfect sync with stocks and bonds.

- High-Yield Bonds: High-yield or junk bonds are issued by companies with below-investment-grade ratings, and they offer higher yields than investment-grade bonds to compensate for the higher risk. While the average yield for high-yield bonds is currently low by historical standards, they have a much lower duration than investment-grade bonds, making them less sensitive to interest rate increases.

- Dividend Stocks: Stocks that pay dividends can be a central income component of a diversified portfolio. Assuming the company remains healthy and increases distributions over time, dividend growth can match or exceed the rate of inflation, helping to maintain the purchasing power of your long-term portfolio.

- Closed-End Funds (CEFs): CEFs are a bit unusual in that they raise capital through an initial public offering and then invest the proceeds in stocks, bonds, and other financial assets. They can offer higher yields than open-end or exchange-traded funds, but they also use leverage, which can amplify losses during bearish periods.

- Midstream Energy Infrastructure: This includes companies that process, store, and transport oil and natural gas, such as master limited partnerships (MLPs) and C corporations. MLPs offer high yields and don't pay corporate taxes, but they issue K-1 forms to investors, which can be a nuisance at tax time. C-corps benefit from simpler corporate taxation and have a broader investor base.

- Art and Collectibles: Art, unique collectibles, and antiques are relatively secure investments that can provide diversification and potentially higher returns than stocks or bonds. Additionally, you get the benefit of being able to enjoy them in your own home.

- Franchising: Investing in a franchise can be a pathway to financial security and long-term wealth creation. It is important to carefully evaluate the risks and ensure that you have a strong sense of the long-term growth potential before investing.

- Peer-to-Peer Lending: Through companies like Lending Club, you can achieve returns of over 6% on conventional A-rated loans, and even higher returns on riskier investments.

- Private Credit: Private credit includes privately negotiated debt financing and loans from non-bank lenders. Platforms like Percent give accredited investors access to private credit investing with as little as $500.

- Master Limited Partnerships (MLPs): MLPs are a type of business entity where limited partners invest by supplying money and earning income distributions, while the general partner runs the company and is paid on a compensation basis. MLPs are commonly found in the energy industry and are attractive to investors due to their steady revenue from long-term servicing contracts.

Remember, investing always involves balancing risk and reward. Before making any investment decisions, be sure to do your own research and consider seeking advice from a qualified financial professional.

Paying off high-interest debt

Cease Unnecessary Spending

Cutting back on discretionary spending is an important first step. This includes postponing non-essential purchases, such as a new TV or jewellery, reducing entertainment expenses, and cooking meals at home instead of dining out. By reducing discretionary spending, you can free up more money to put towards paying off your debt.

Negotiate a Lower Interest Rate

Creditors are often willing to work with their best cardholders, especially those with a history of timely payments. Contact your credit card company and negotiate a lower interest rate. Be honest about any financial hardships you may be facing, and don't be afraid to bargain for a better rate.

Increase Your Monthly Payments

If you want to make a significant dent in your debt, you need to increase your monthly payments beyond the minimum amount. Review your budget carefully and find areas where you can cut back on spending, or consider taking on a part-time job to generate extra income. Even a small increase in your monthly payments can make a big difference in the long run.

Balance Transfer Credit Cards

Consider transferring your high-interest credit card debt to a balance transfer credit card with a 0% introductory APR. These cards allow you to pay off your debt without accruing additional interest during the introductory period, which can range from 12 to 21 months. Just make sure you have a plan to pay off the balance before the introductory period ends, as the interest rate will increase significantly afterwards.

Debt Consolidation Loan

A debt consolidation loan allows you to combine multiple high-interest debts into a single payment with a lower interest rate. Instead of paying off multiple credit cards with high interest rates, you can apply for a consolidation loan with a lower rate, typically around 10%. This will help you save money and make it easier to manage your debt.

Personal Loan

If you can find a personal loan with a lower interest rate than your credit card, this could be a good option. For example, if your credit card has an interest rate of 24% and you can find a personal loan with an interest rate of 9%, you'll cut your interest charges by more than half. Just make sure the personal loan offers a lower rate than your current debt to make it a worthwhile option.

Credit Counselling

Enrolling in credit counselling with a nonprofit agency can provide you with expert guidance on the best strategies to address your debt. These agencies will work with you to assess your financial situation and offer solutions tailored to your needs. Credit counselling can help you develop a debt management plan, which may include negotiating lower interest rates and creating a system for regular monthly payments.

Investing in the stock market

Set Clear Investment Goals

Firstly, it is important to set clear investment goals. Ask yourself what your financial objectives are. For example, are you saving for a home, a vacation, or for retirement? Your objectives will depend on your life stage and ambitions. Younger investors tend to focus more on long-term wealth accumulation, while those closer to retirement tend to focus on generating income and preserving capital.

Determine How Much You Can Afford to Invest

The next step is to assess how much you can afford to invest. This involves reviewing your income sources, establishing an emergency fund, paying off high-interest debts, and creating a budget. It is important to only invest money that you can afford to lose.

Determine Your Risk Tolerance and Investing Style

Understanding your risk tolerance is crucial. Reflect on your comfort level with the ups and downs of the stock market. Are you willing to accept higher risks for potentially greater returns, or do you prefer stability? Your risk tolerance will also depend on your investment timeline and financial cushion.

Choose an Investment Account

You will need to choose the type of account you will use for investing. This could be a regular brokerage account, a retirement account, or a managed account. Consider the tax implications of each account type and evaluate the fees, commissions, and minimums involved.

Fund Your Stock Account

Once you have chosen a broker and account type, it is time to fund your account. You can do this through a bank transfer, check deposit, or by transferring from another brokerage account.

Pick Your Stocks

When choosing stocks, look for stability, a strong track record, and the potential for steady growth. Avoid risky stocks that could result in quick losses. Consider investing in blue-chip stocks, dividend stocks, defensive stocks, or ETFs.

Learn, Monitor, and Review

Stay informed about the global economy, industry trends, and the companies you invest in. Utilize stock simulators to practice trading without risk. Diversify your investments across different asset classes to reduce risk and improve potential returns.

Tips for Successful Investing in the Stock Market:

• Investing in the stock market is a long-term strategy, so avoid short-term trading and remain committed to your investments.
• Diversify your portfolio to reduce risk.
• Be prepared for downturns and volatility in the market.
• Consider using a robo-advisor or an online broker for guidance and automated investment decisions.
• Avoid individual stocks if you are a beginner; instead, opt for index funds or mutual funds.
• Focus on investing for the long term and avoid the temptation to frequently check your portfolio.

Real estate investment trusts

REITs are an excellent way to gain exposure to the real estate market without the hassle of buying and managing properties. They are traded on major stock exchanges, making them highly liquid, and offer a number of benefits to investors, including:

• High dividend yields: REITs typically pay out high dividends, as they are required to distribute at least 90% of their taxable income to shareholders.
• Accessibility: REITs are accessible to everyday Americans, not just Wall Street, banks, and hedge funds. Anyone can invest in REITs, either directly by buying shares on a stock exchange or indirectly through a mutual fund or exchange-traded fund (ETF).
• Diversification: REITs can help to diversify your portfolio as they tend to follow the real estate cycle, which is less volatile than the stock and bond market cycles.
• Inflation hedge: REITs can serve as a hedge against inflation, especially those with commercial holdings, as they can raise rents in tandem with inflation.
• Strong returns: REITs have historically delivered competitive total returns, based on high, steady dividend income and long-term capital appreciation.

However, it's important to note that REITs also come with certain risks, including:

• Interest rate sensitivity: Real estate values and occupancy demand are closely tied to interest rates, so REITs can be sensitive to changes in interest rates.
• Occupancy rate risk: REITs must maintain certain occupancy levels to sustain expected payouts, so lower rents and occupancy rates may negatively impact their performance.
• Geographic risk: Some REITs have a narrow geographic focus, so they are vulnerable to regional economic downturns or shifts in demand.
• Business risk: REITs are susceptible to the performance of the underlying business or industry that leases their properties.

When investing in REITs, it's recommended to start with publicly traded REITs, as they offer the easiest entry point and don't require a large amount of capital. It's also prudent to start small and gradually increase your allocation to REITs over time, allowing you to get familiar with the real estate market and its dynamics.

Additionally, it's important to do your research and examine the REIT's portfolio, management team, debt levels, and dividend history. Fees are another crucial factor to consider, as high management and transaction fees can eat into your returns.

Overall, REITs can be a valuable component of a well-diversified portfolio, offering stable cash flow, attractive risk-adjusted returns, and exposure to the real estate market.

High-yield bonds

When investing in bonds, you are lending your money for a fixed period in exchange for a regular fixed rate of interest known as the coupon. At the end of the bond's term, the original investment, or principal, is repaid to the bondholder. The three primary drivers of bond prices, including high-yield bonds, are credit risk (the issuer's financial profile), interest rates, and duration.

• Diversification: High-yield bonds can enhance portfolio diversification due to their low correlation with investment-grade fixed-income sectors.
• Enhanced current income: To attract investors, high-yield bonds offer significantly higher yields than government bonds and many investment-grade corporate bonds.
• Capital appreciation: Improvements in the issuing company's performance or the economy as a whole can positively impact the price of a high-yield bond.
• Equity-like, long-term return potential: High-yield bonds tend to respond similarly to equities in the overall market, leading to comparable return profiles over a full market cycle. However, the larger income component of high-yield bonds provides added stability, resulting in lower volatility.
• Relatively low duration: High-yield bonds often have shorter maturities, making them less sensitive to day-to-day fluctuations in interest rates.

When considering investing in high-yield bonds, it is essential to remember that they carry a higher risk of default. Therefore, investors should carefully monitor the financial health of the issuing entities and diversify their holdings across issuers, industries, and regions.

Dividend stocks

• Find a dividend-paying stock: You can look for stocks that pay dividends on financial sites or your online broker's website. You can also check out free stock screeners.
• Evaluate the stock: Compare the dividend yields among its peers. If a company's dividend yield is much higher than similar companies, it could be a red flag. Also, look at the stock's payout ratio, which tells you how much of the company's income goes toward dividends. Generally, the lower the payout ratio, the more sustainable the dividend.
• Decide how much stock you want to buy: If you're buying individual stocks, you'll need diversification. Determine what percentage of your portfolio goes into each stock. For example, if buying five stocks, you could put 2% of your portfolio in each.

When investing in dividend stocks, it's important to look at companies that have been increasing their payouts over time. This indicates that the company's management is willing to do so and that the business's fundamentals are strong enough to support such moves.

• Procter & Gamble (NYSE: PG)
• Lowe's Companies (NYSE: LOW)
• Chevron (NYSE: CVX)

While high-yield dividend stocks may be tempting, they can also be risky. Dividend growth stocks may offer a better path to collecting a high dividend over time. Their yields may not be high today, but as the company grows and increases its payouts, your recurring dividend income will rise.

A safer approach to earning a 10% return on your investment could be to invest in dividend growth stocks. While it may take several years, their increases will accumulate, and you can eventually reach a 10% return.

Frequently asked questions