Expecting a tax refund this year? Well, that’s good news and bad news. Few people stop to consider the negative side — they’re getting a check, after all — but a tax refund means you were overpaying your taxes last year to the Treasury Department or your state government, or both. And that means you’ve been without money throughout the year that could have been invested and earning you even more money. But that’s another blog post altogether. Besides, those tax overpayments have set you up for the good news: You’ll now have some money to invest.
Actually, your situation is even better than that. Until very recently, your options for investing a windfall such as a small inheritance, a bonus at work or a tax refund were limited. You could invest in the stock market — figuring out which specific companies, mutual funds, ETFs (exchange-traded funds) or other equities to purchase. Or you could make an even more active investment like buying and managing a small real estate rental property. But unless your tax refund or other windfall were large, you likely didn’t have many other simple options for investing that money.
Today, however, thanks to the Internet, the democratization of information and the innovative ways that businesses are organizing and raising capital, you have a host of interesting new options for investing your money. Here are just a few.
1. Invest in commercial real estate through an online investing platform
Here’s an innovative but rapidly maturing new industry that, for the first time, is allowing individual investors access to commercial real estate deals previously available only to the wealthy.
With an online real estate investing platform like RealtyMogul, you can invest a small amount of capital in your choice of many individual real estate opportunities — from retail spaces to industrial properties to multifamily apartment buildings and more, pooling your investment with others to fund the deal. You can also search for deals based on your preference for either debt- or equity-based investments.
If you would prefer not to invest in a single real estate deal, for as little as $1,000 you can also invest in a real estate investment trust (REIT) on the RealtyMogul platform — called MogulREIT I. By raising capital for this investment directly online, RealtyMogul offers you the ability to participate in a REIT with a lower minimum investment and lower fees than you would have with many traditional non-traded REITs.
And although this industry is still relatively new, it is growing rapidly and consistently. Indeed, in just a few short years RealtyMogul alone has already raised and invested $260 million and paid out more than $60 million to thousands of investors. Of course, this investment, like any other, carries risk — and you will want to do your own research and due-diligence.
With real estate crowdfunding, you can now invest a small amount of capital into investment deals previously shut off to all but the most affluent investors — and at the same time benefit from a team of highly trained financial and real estate experts vetting every deal before it ever reaches the platform for your consideration.
2. Become an angel investor
Angel investors have been around for a long time. Traditionally they’ve been high-net-worth individuals who invest in startups or struggling small businesses and who, unlike venture capitalists, often make these investments without requiring the formal pitch, detailed business plan or sophisticated research proving the viability of the business. The terms of their investments are also often more favorable than a business would be able to secure from more traditional investors.
You can think of an angel investor as a wealthy relative or family friend — which is often exactly what they are. And that wealth has historically been the barrier to entry for all but the most affluent and financially secure angel investors.
Today, however, those barriers have come way down. Companies like OneVest have developed startup funding platforms online, where individual investors — perhaps you, with your shiny new tax refund — can pool their capital and build equity stakes in early-stage startup companies. So, even if you don’t have enough capital to act as an angel investor all by yourself and get a young startup with a great idea off the ground, now you can pool your money with other investors — and fund that young business as an angel investing team.
The minimum investments and fees for these angel investing platforms vary, but OneVest allows investments of as little as $10,000 in a single company and charges only an annual membership — no additional fees — to the investors on its platform. This can provide you access to businesses in which you would otherwise not be able to make an equity investment.
And if you’re wondering, the experts at OneVest and the other angel investing platforms vet each startup seeking to raise capital through their site. So although there is certainly risk involved in such investments, including total loss of investment, you will know in advance that any business you investigate on these platforms has been subjected to due-diligence by the platforms’ experts.
3. Let a robo-advisor manage your investment portfolio online
Yes, these services exist now. And depending on your investing goals and your risk tolerance, they might be worth a look when you deposit that refund check from Uncle Sam.
While investing in stock and bond ETFs is not itself a new investment strategy, companies like Betterment have added a layer of intelligence and simplicity that can make the process easier for you than such investments have ever been.
At the heart of Betterment’s model is automation — from the platform’s ability to sync and advise you on all of your investments (even those outside of your Betterment account), to the company’s “robo-advisor” automated system that lets you customize a portfolio, with just the right mix of asset types and categories, set your investment goals, and then let their system do the rest.
Simply put, this platform simultaneously leverages a team of financial experts, a massive amount of research data, and a series of sophisticated algorithms to turn that data into potentially intelligent investment advice — all of which the company sets to work on your investment portfolio without you even having to know it’s happening.
And because this is ultimately a post about investing your tax refund, it’s worth pointing out that Betterment focuses not only on achieving returns for you but also on “tax loss harvesting.” This means their system automatically looks to find capital losses in your portfolio that might be able to lower your investment taxes and increase your after-tax returns.
Indeed, when it comes to taxes, one possible downside of a robo-advisor platform like Betterment is that because the company might be able to lower your capital-gains taxes, you might find yourself with a smaller refund from the IRS next year. But that’s a good problem to have.
Just keep in mind that by investing your money in a portfolio managed through the Betterment platform — just as with the other investments described here, and indeed with any type of investment — you are incurring risk, and no portfolio manager can guarantee results.
Regardless of what you choose, it could be a great time to invest and put your tax refund to work.