Top Tips for Investing in Crowdfunding - Sun and Planets Spirituality AYINRIN
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The concept of crowdfunding can deliver an alternative avenue to building and diversifying a portfolio and adding to wealth when considering investing in future projects. Crowdfunding allows a number of individuals to invest small amounts of their money across multiple opportunities, as opposed to investing a lot of capital in only one, thus sharing the risk and reward as a result.
Investors can generally diversify their portfolios quickly and more efficiently through crowdfunding, while generally improving their chances of obtaining a competitive rate of return on such investments. When capital is diversified across several investment opportunities, this can, in turn, reduce the chances of losing all of the capital initially invested, as opposed to investing all of your capital into one investment project.
Within the modern business world today, many female entrepreneurs are searching for alternative methods to enhance their wealth beyond their standard paychecks. An excellent way of doing so is by investing in other businesses and projects. Thanks to crowdfunding opportunities, these opportunities are more accessible than ever.
This article, explores the nature of crowdfunding as well as some top tips to consider when beginning to make crowdfunding investments and how to do so correctly.
Register with a Crowdfunding Platform
The first step when undergoing crowdfunding investments is to find a reliable crowdfunding platform. Some of these will educate investors on the legalities that accompany equity crowdfunding. This is a good place to start particularly if you’re business woman that is new to the industry.
Once you’ve registered with a crowdfunding platform, you’ll most likely be required to undergo an appropriateness test in order to assess your investor profile and readiness. As is often found with other investment methods, it’s a legal requirement to evaluate the suitability of investors prior to being allowed to invest in any live projects, as set out by FCA regulations.
Depending on the platform you choose, criteria can vary, but generally, you’ll need to undergo a series of questions prior to beginning your investment journey. After you’ve successfully passed the test, you will then be notified as to when you’re eligible to invest in the live crowdfunding projects available. It’s important to remember to do your own due diligence and thoroughly explore the value of any deal for you.
The Regulations in Crowdfunding
Crowdfunding investments, such as equity crowdfunding, are regulated in the UK by the Financial Conduct Authority (FCA) and have been a regulated activity in the UK through the Financial Services and Markets Act 2000 long before the term ‘crowdfunding’ had even been established within the industry.
Transactions relating to investments must be authorized by the FCA, regardless of whether they’re done so via online or offline processes. The FCA (formerly known as ‘FSA’) introduced new rules to regulate the process of crowdfunding in March 2014, in an attempt to improve the overall growth of the sector, as well as:
- To make crowdfunding more appealing for investors and lenders
- To enhance the protection of consumers by providing complete transparency of necessary information
- To improve the state of the financial system within the UK
- To further inspire positive competition within the sector
The platform that you choose will need to understand and categorize your investor type as per the regulations set out by the FCA. Before answering the questions, it’s strongly advised that you read through the platform’s website and, importantly, the risk warning provided, so you can fully ensure that you understand the process completely.
Assess the Attributed Costs
Crowdfunding opportunities can occasionally be perceived as a costly venture, but this isn’t always the case for every investment platform in the modern era of crowdfunding. The majority of property crowdfunding opportunities nowadays will allow a collective of business women and men to invest at a variety of levels, thus sharing the risks and rewards as a whole, therefore reducing the entire level of risk or reward that would otherwise rest upon one person.
With some crowdfunding platforms, you can even invest in projects with as little as £100, with all fees associated with the development projects on the platform being charged to the fundraiser. This removes any recurring or one-off fees attributed to investors, other than those that may be charged to them through their personal bank in order to support outgoing payments.
This allows investors to determine what they would like to invest in, while knowing there will be no hidden costs involved later in the process. With the potential to invest from as little as £100, this will likely leave you with extra capital to reinvest in live projects.
Remember to Think Long-term
Crowdfunding can potentially support your investment portfolio in several ways as you progress through your investment journey. Investing in crowdfunding opportunities can lead to multiple forms of passive income over time, which is a great way to support your investment portfolio.
Another great attribute of investing in crowdfunding is compound investments, as these can provide the potential for an asset to develop its own earnings over time, which can then either be reinvested into other projects or kept in the original investment with the aim of eventually generating its own revenue.
Interestingly, according to PwC, “17% of male-led campaigns reach their finance target, compared with 22% of female-led campaigns. Overall, campaigns led by women were 32% more successful at reaching their funding target than those led by men across a wide range of sectors, geography and cultures.”
Crowdfunding has the potential to help everyone from all walks of life to diversify their portfolios and can also aid in reducing the risk of a single bad opportunity negatively impacting an entire investment portfolio.
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