What’s Right For You? Investing in a Fund vs. Individual Investment Opportunity
The world of investing is filled with multiple types of opportunities. However, the investment that you opt for is a completely personal choice. The choice that you make is completely contingent not only on your personal investment strategy, but it also hinges on your personal financial goals. If you’re looking for investment opportunities that don’t provide much profitability in the short-term, but pay off in the long-term, there are clearly certain choices that you should make. If you’re torn between investing in a fund and investing in an individual investment opportunity, it’s important that you understand the pros and cons of each, as well as determining how they fit into your personal portfolio.
Understanding Investment Funds
The term “investment fund” is a pretty broad term that can be used to describe a variety of investment vehicles. Mutual funds, real estate syndications, real estate crowdfunding, and other investment vehicles in which you invest your money into something that someone else controls. Obviously, this type of investment class provides its own list of pros and cons, each of which will matter to you depending on your goals and investment strategy.
The primary red flag for investors who aren’t sure about investment funds is usually based on the fact that they don’t have control over what their money is doing. For instance, if you invest in a real estate syndication, you don’t get to make the final decision about what property your money is being used to purchase, nor are you involved with any of the management decisions that are made. For example, if a real estate syndication that you’ve invested in decides the building that your syndication owns needs a new roof, you don’t be consulted about the decision. Instead, the syndication decides what the money that you and other investors have provided will be used for.
However, this isn’t necessarily a bad thing. While you don’t have control over every dollar that you’ve invested, you do have the choice of only investing in companies that you have done your due diligence on and believe fit into your portfolio. Additionally, investing in funds allows you to earn truly passive income, as someone else is responsible for managing and multiplying your investment. This opportunity to earn passive income is incredibly appealing, even if it means forfeiting a bit of the control that you have over the property.
Understanding Individual Investments
Obviously, investing in funds with other investors where other people manage and control your money and the subject investment isn’t your only choice. Finding individual investment opportunities isn’t difficult, as there are plenty of options for you to invest your money in. However, there are certain risks associated with individual investments, and even more things that you should know before you dive into that type of investment. However, those risks come with a unique set of rewards.
For the sake of gaining a better understanding of investing in individual investments, let’s consider real estate once again. While we discussed real estate syndications before, let’s assume that you’ve purchased a single-family home that you’re going to use as an investment property. Obviously, you’ve used your own money to either obtain a mortgage or you’ve paid a full-cash price for the property. It’s yours, and no one else will be involved with managing the property or maximizing the profits it produces. Everything is up to you.
Being in sole control of how the investment is handled is incredibly appealing. If you want to rent the property out, you can gather the monthly rent, and after any expenses are paid, all the profits are yours.
However, you’re also completely responsible for paying taxes, paying expenses, maintaining the property until it is sold, and handling every other management aspect on your own. Obviously, this provides you with more control, but it can make the income that you earn from your individual investment less passive in nature.
The decision to invest in a fund or in an individual investment opportunity is completely up to you. After all, it’s your money. However, you should understand the pros and cons associated with each and choose the option that best fits in your portfolio. Doing so ensures that you’re building a portfolio that will benefit you and your heirs for years to come.