Cheapskate’s investing strategy

Small returns or big gains?

Any investor casual or professional, would love to see if not 200% gains, then at least 50% returns for every invested dollar or euro. However, any investment opportunity offering even 8% gains should be considered carefully.

After all, scammers and fraudsters thrive by offering huge gains to unsuspecting investors. And by never delivering their promises!
Any credible investment opportunity will offer you around 2% to 10% gains per annum. That’s enough to beat inflation and then take some profits. Investing in stocks, or financial derivatives, of course, can lead to gains higher than 10%. However, the investor then takes a bigger risk compared to conservative investing opportunities.

The strategy is… simple

The Cheapskate’s investing strategy is both simple and difficult at the same time.
The goal of the Cheapskate investor is to spend small amounts of money on investments that give medium to high returns. Sounds simple enough?
Cheapskate’s strategy gets complicated when the investor starts to think about appropriate investment opportunities. High investment returns, such as buying properties or participating in initial public offerings (IPOs) often require a large amount of money to invest. Yet, the strategy is based on low investments.
It’s easy to recognise appropriate investment opportunities by eliminating the unsuitable ones.
  • Savings accounts – they allow the investor to spend a small amount of money on an investment, but they do not offer medium to high returns.
  • Real estate – as discussed previously, this investment type requires a high initial investment.
  • Forex – very low chance of a non-professional trader getting medium returns.
  • Money market funds – low investment returns.
  • ETFs – low investment returns.
  • Crypto currencies, blockchain projects – very low gains, if any at all.
  • Art collectingtheoretically, the casual investor can afford to buy one or two low-priced pieces per year. However, since it’s unlikely that non-famous pieces will bring large gains for the investor, it’s best to avoid art collecting.
There are probably many more investments that have high barriers to entry in the form of large initial investments or investments that offer only low gains to the investor. If you know more examples of similar investments, feel free to share them with other readers.

Ready for investing?

When we eliminate investments that do not follow the rules of the Cheapskate investor, we see the opportunities appropriate for this investment strategy. These are the opportunities where even small amounts of money can make a significant impact. Meaning, your money will not be lying for 5 years at a savings account, only for you to see later that it did not earn you any significant gains.
  • Business – if you have a friend, family member or an acquaintance who is starting a business,  it is a good idea to invest in a venture like this. Close friends and family members generally accept even small loans or advances when they are starting their business. Even if the business does not grow into a large company, it is very likely that your loan will be paid off fully. This means that you will be offering a small investment and receiving a medium to a high return.
  • Peer to peer lending – this type of lending has entered the mainstream investing space fairly recently. Peer to peer lending is offered by companies, which research the potential debtors and their risk level. Once the potential debtors are approved by the peer-to-peer lending companies, only then can the lenders loan them money. The lenders can choose who to loan the money to and what sum they want to invest. Lenders can choose from low to high risk lending, and consequently, low to high returns.
  • Collectibles – collectibles such as historical coins and precious metals can have low initial investment costs. They also can offer medium to high gains. The market for historical coins is flourishing and more people are starting to trade them. However, a casual investor should be very careful with this type of investment. Without having enough information, an investor can easily buy a worthless coin. Precious metal prices are affected by stock market movements and the public’s optimism or pessimism about the economy. Any investor looking to invest in collectibles should do extensive research before doing so.
  • Stocks – who doesn’t want to be the next Warren Buffet? Stock trading is very easy to get into, does not require large investments, and you can see your $100 investment turning into $2000 over a few months. If you are just starting to invest, wait for a bull market. In a bull market, you are less likely to lose your initial investment, and more likely to receive the medium to high returns you were hoping for. A more knowledgeable investor can receive high gains in a bear market. For a casual investor, without the knowledge about the right stock types for a bear market, trading in such a period can be hard.
  • Options, CFDs and other derivatives – if the investor doesn’t have much experience in trading stocks, he or she shouldn’t get into derivatives trading. Trading for at a least half a year and constant reading should be the minimal level of preparation before getting into derivative trading. Derivatives carry a lot more risk than stocks and forecasting their changes is harder. Like stocks, they have low initial investment costs. Unlike stocks, they often carry high returns for the investors. If you are ready to read a few books or go through a course learning about financial derivatives, then derivatives trading may be for you.

Hard choices

There are so many investment choices in this day and age, and most of them require low initial investments. This is why it can be difficult for a person to choose the right investment type.
Choosing the right investment type is largely dependent on the investor’s strategy. Without a strategy, the investor is very likely to make impulse trades and receive lower returns. Sticking with one strategy requires making disciplined and consistent choices. And it means zero impulse trades. Be careful choosing the right strategy for you.
Disclaimer: this article should not be taken as financial advice. Consult with an investment professional before investing.
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Categories: Investing, Life hack

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