P2P Money Blog

Guest entry by Martins Sulte, Mintos CEO and co-founder

Any investment carries a certain responsibility. Modern technologies make new investment possibilities ever more available and ensure reduced costs of investment, opening up investment opportunities to those with less funds to invest. Investing means looking for a suitable risk/return profile. Therefore, I suggest that you look at investment opportunities advisedly, seeking the most suitable solution for you.

There are several assets that one can choose depending on available funds and the strategy one has developed. One can invest starting with a small amount of money to understand whether a specific financial instrument is suitable; it is also important to start investing as early as possible in order to use the power of compound interest, that is, to earn interest on revenues from interest. Since people regularly, like me, know how to best invest their available funds, I offer five suggestions pointing to where it would be valuable to invest in the coming year.

1) Education

Before making serious investments, I suggest investing in education and first of all, educating yourself. It isn’t even essential if this is information about investments or another theme, the main thing is the process of education itself. A good education offers opportunities in the future and it is one of the safest investments when assessing a planned return. However, one should be aware that a good education alone does not ensure a job and it provides no guarantee against losing one’s job at some point.

Today an education requires less additional funds than it may seem, because one can invest in an education not only by learning in the classroom but also by buying a book for self-teaching, by participation in online courses or by using other easily accessible resources on the internet. For instance, there are massive open online courses (MOOCs) available on such platforms as Udacity, edX and Coursera, ensuring possibilities to a wider audience at far lower cost than one pays to learning in the classroom. At the same time getting high-level knowledge from world-renowned schools such as MIT, Harvard or Berkeley.

A good investment includes any new body of knowledge, that can be a language, new software or the skills needed to build a new device. In addition, this investment can start as a simple desire to to learn something without any commercial purpose. By investing in education, a person gets three essential benefits. Firstly, it provides moral satisfaction. Secondly, it is an opportunity to acquire new skills;this could help in the future because we presently don’t know what functions or knowledge may be necessary for a person in 10 or 15 years. Thirdly, a not unimportant aspect, is that investing in education is a reevaluation of existing things from a new viewpoint, which helps to find increasingly better solutions and to perfect existing solutions in various areas of life.

2) Land

Land is one of the best investments but one must emphasize that this kind of investment is suitable for a person planning one’s activities in the long term. The growth of the value of land in the future is linked to overpopulation. Land is becoming an increasingly scarce resource in many countries, with the result that buildings are being built at increasingly higher rate. Cities such as London, New York and Mumbai are clear examples of large numbers of people and the value of land. It is not for nothing that China is actively building islands in the sea, while in India, a large part of the city is land reclaimed from the Arabian Sea, this ensures the expansion of the city. The magazine Der Spiegel, analyzing the UN forecast for population changes, concludes that in 2100 there will be between 11.2 and 16.6 billion people on the planet. That means that the value of land will increase every year.

3) Company shares

To be sure that there are various companies in whose shares it is possible to invest, but I would like to emphasize companies that work in the areas of food and technology. Food, like land, will be increasingly in demand because of the growing population. For instance, already various startups are radically changing our thinking about food by investing and offering new products that offer maximum ease of use and offer balanced and sufficient nutritional value. That means that the rapid development of technological ease and will continue to ease people’s lives in the future. In turn, various technology companies, of which many have yet to be founded, will offer services that will be utilized by an increasing number of people. At this present time, we are unsure of what services will be necessary in the future, but I believe they will all be delivered with the help of new technologies. I see great potential in the virtual reality industry, which with help from technology, has already created a very close parallel world to real life, delivered to people through their senses. This industry is developing very rapidly and will continue to develop with large strides in the future. We are not far from a point when the real world and virtual reality will merge, which is exciting but at the same somewhat scary in the changes it may bring.

It is a positive factor that one can make both short-term and long-term investments in company shares, giving people a choice of the most suitable alternative. One should count on investing in shares as requiring patience, constant attention to one’s chosen strategy and especially psychological resilience in acting rationally, which as has been proven in most cases, is not an investor’s strong side.

4) Investment funds

Investing in funds is comparatively easier however, research and the selection of a suitable fund is necessary. In my opinion, investment funds that follow a particular market (tracker funds) are a good choice because the investment carries lower commission costs and does not require in-depth involvement. It is a perpetual subject of discussion on whether active or passive investments are best. However, more and more experts are leaning toward passive investing, which does not try to exceed the market and saves on commission costs.

On the whole, investment in funds results in a balanced return nonetheless, one must reckon with additional payments for the maintenance of each fund, which means the return will be lower. One must also be aware that changes are constantly taking place. The development of technology and new entries to the market develop this process, making investment cheaper and more accessible. This means that it is possible to start investing with significantly smaller sums. Such new services as Betterment and Wealthfront offer automated investment management services and make investment maximally accessible to all.

5) High yield investments

A higher return naturally means a higher risk. High risk bonds (junk bonds), shares and real estate investment trusts count among high-return investments. In addition to the aforementioned, the significance in the financial services sector is being proved by such new classes of assets as crowdfunding and peer-to-peer lending. On crowdfunding platforms anyone can support another realizing person’s goals via the internet. Last year USD 2.66 billion were raised in this manner in the US. The largest platforms in the field are Kickstarter and Indiegogo. Just by using Kickstarter, the Latvian startup success story AirDog raised USD 1.3 million to start in the middle of 2014 the production of drones that follow their users.

At the same time, peer-to-peer lending platforms bring together investors and borrowers. That means that investors, who want to invest free funds meet borrowers who need funding to realize their goals. These technology-based platforms offer not only a new class of assets to ordinary investors, but also significantly reduce costs and ensure the opportunity to invest much smaller sums which are not measured in thousands of euros. The peer-to-peer lending industry has experienced rapid growth, reaching almost USD 25 billion in loans financed in 2014, a figure that according to a forecast by Morgan Stanley, will reach USD 290 billion in 2020.

Author: Martins Sulte, Peer-to-peer lending platform AS Mintos CEO and co-founder