What would your dream investment portfolio look like? Is there a mix of stocks, bonds, and cash that you would happily pour your money into? What about real estate – is this the key to retirement wealth?
These questions and more can be answered with automated investing. Also known as digital investing or algorithmic trading, automated investing allows for greater flexibility in investment decisions and gives the investor more confidence in their investing style. More and more people are realizing the benefits of automated investing, so let’s dive into how you can make some extra cash with this powerful investing tool.
The Appeal Of Automated Investing
First and foremost, automated investing appeals to those looking for greater flexibility and confidence in their investment decisions. Thanks to the increasing complexity of the marketplace, many people feel overwhelmed when deciding where to invest their money. To make matters worse, the news reports are filled with information about the latest security breach or corporate scandal, which makes the decision to invest even more agonizing.
With automated investing, all the decisions about investing are made for you. You give the algorithm the key performance metrics for the market you’re invested in (e.g., an Apple (AAPL) share price), and the algorithm makes all the investment decisions for you. The algorithm learns from your investment decisions and automatically adjusts your portfolio according to your risk profile and time horizon. This way, you can rest assured that your money is being handled by expert investors who have followed all the proper protocols to minimize risk and maximize profit.
How To Make Money Automatically With Automated Investing
Now let’s get to the good stuff… How do I make money automatically with automated investing? There are two main ways. The first is called direct participation, and the second is called direct ownership. Let’s break down how these work.
1. Direct Participation
In direct participation, you essentially rent out your portfolio to investors who want to “participate” in your gains. Similar to traditional real estate investing, you partner with a group of investors (a pool) who all agree to pay you a regular income from your investment. Typically, you set the tariff for direct participation, so it can vary from 10% to 40% of your investment (more on this below).
One of the beauties of direct participation is the variety of opportunities it provides. Not only can you make money through real estate investing, you can participate in the profits of virtually any market or industry. So, if you have a keen eye for spotting profits in the market, you can find a way to participate in those profits directly through automated investing. For example, you might want to participate in the growth of the renewable energy sector, or you could look for undervalued shares in big tech companies.
The disadvantage of direct participation is that, like any other investment option, you need to have substantial experience in investing in order to succeed. Also, since you’re essentially giving your money to a group of strangers, you need to be really comfortable with this type of relationship. Having said that, you need to consider the advantages, especially if you’re looking for an easy way to make extra cash.
2. Direct Ownership
In direct ownership, another popular method among high-net-worth individuals, you purchase a piece of an investment property with the intent to make a passive income stream from rents. This technique differs from direct participation in that you’re not paying participants to “participate” in your funds; you’re paying them to give you an income-producing asset. When you purchase an investment property, you’re also obligated to manage and maintain the property. If you can find a reliable manager who is skilled at getting tenants and collecting rent, you can significantly reduce the work associated with property management. This is one of the beauties of direct ownership. You don’t have to be hands-on with investing to make money – you can hire someone to do it for you. And since you’re the one who committed the cash and now has the property, you’re obligated to see it through to the end.
The disadvantage of direct ownership is that, similar to direct participation, you need to have a substantial amount of money to invest. Another potential pitfall is that if the investment property declines in value, you could potentially lose money. Direct ownership is a good choice for those who want to generate an income stream quickly and easily. And last but not least, property tax can be a real pain. If you’re renting the property out, your hands are basically tied when it comes to paying tax. It’s either that or sell the property and pay a capital gains tax.
Risks For Automated Investing
Now let’s talk risks. What are the risks associated with automated investing? Just like any other type of investment, there are risks associated with automated investing. Most notably, you need to be sure that you’re taking on enough risk to earn a decent return (risk-rewards). To find the right level of risk for your investment portfolio, you need to consider several things such as your time horizon, level of experience, and risk tolerance. To help you get a feel for what kind of returns you can expect from your investment, we’ve compiled a list of some of the most common and possibly the least attractive aspects of automated investing.