INVESTING

Three ways to start investing with $100 or less

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A slew of affordable financial products to hit the market in recent years means the cash-strapped and asset-poor can now invest like the wealthy - and you don't even need $100 to get started.

Money magazine raises the hood on three investment vehicles - peer-to-peer loans, micro-investing apps and fractional property - worth exploring when you want to start investing.

Peer-to-peer (P2P) loans

How they work

invest with $100 or less micro-investing start investing

Individuals investing in these managed investment products in effect become "alternative banks" offering more competitive secured and unsecured loans. In addition to pocketing a platform fee from the loan costs borrowers pay, P2Ps may charge an application fee. The remainder of the interest rate paid on the loan goes to investors.

As well as deciding how much you want to invest, you may also decide how your investment is used. Based on creditworthiness, you might fund just one particular borrower or invest in a wider basket of loans. You may (in some cases) get to choose an interest rate and loan period that best suits you.

Loans are returned to investors according to pre-set repayment schedules, and you can have capital repaid along with loan repayments or at the end of the loan period.

Pros and cons

The higher the interest, the greater the risk of losses. Choosing the amount you want to invest and over what duration limits your exposure but the trickier part is choosing who to lend to.

The Australian government's guarantee to certain savings products doesn't apply to these investments. While some operators offer insurance and/or separate discretionary fund to cover losses, this typically comes at a price.

P2P lenders must comply with the Corporations Act 2001, and the National Credit Act, and have an AFSL licence. However, while they also need to register with ASIC, the regulator does not actively monitor the sector.

Key providers

SocietyOne and listed company Wisr (formerly DirectMoney) target higher net-worth investors, while RateSetter and Marketlend target all Australians. Then there are Harmoney, ThinCats Australia and Bigstone.

How much will I need to invest?

RateSetter and Marketlend have smaller minimum investments of $10 and $100, while SocietyOne, Wisr, Bigstone Loan Fund and ThinCats have a minimum of $100,000, $10,000, $1000 and $1000 respectively.

What have returns been like?

Depending on the term and underlying risk, average returns can be between half to two-thirds higher than term deposit rates. While SocietyOne investors currently receive between 5.25% and 17.74%, RateSetter's annualised return (less fees and bad debts) is around 7.69%, and Bigstone investors can earn 9% net annually.

Wisr's personal loan fund has delivered 7.66% (post-fees) since inception, and ThinCat's lenders received 16% gross over the past four years. Marketlend offers returns of between 8.39% and 11.34%.

Micro-investing apps

How they work

Also known as spare change investing, micro-investing exposes you to world of the sharemarket. Typically registered as managed investment schemes, micro-investing products are overseen and regulated by the Australian Securities and Investments Commission (ASIC).

Leading digital platform Raiz (formerly Acorns) acts like an electronic loose change jar. By linking to your transaction cards, Raiz "rounds-up" the balance of your transactions to the nearest dollar. Every time $5 is accumulated in your account, it's invested in a mix of ASX-listed exchange traded funds (ETFs). You can withdraw all or part of your investment at any time or transfer into a Raiz super fund.

Like Raiz, savings app Carrott also rounds up loose change to the nearest dollar. But instead of investing "lazy cash" in shares, Carrott is a payment gateway that lets you decide where every accumulated $5 goes (for example, super account or loan). Then there's the digital investment platform Spaceship Voyager, which doesn't have round-ups but still allows you to start investing directly (with $5) in an index portfolio of Australian and some global stocks.

Pros and cons

Micro-investing is a user-friendly, low-entry way for novice investors to save or invest, while also raising their financial literacy. But given they're all app-based, they exclude cash buyers, and fees on small balances can erode returns. Given the limited control over investment options, those investing larger sums for longer periods may not see micro-investing platforms as a primary investment tool.

Key providers

Raiz, Spaceship Voyager and Carrott. ING Everyday Round Up also rounds-up change from transactions but only deposits it into a savings account.

How much will it cost?

Carrott charges $1.25 a month for accounts with under $5000, while the Raiz fee is $1.25 for accounts under $5,000, with no transaction fee. There are no fees for the first $5000 invested in Spaceship Voyager, and 0.05% annually for balances thereafter.

What have returns been like?

On average Carrott users save around $50 a month. The average annual Raiz user return (from inception in December 2015 to December 2018) was 12.4%. In the 12 months to June 30, 2018, the tech-heavy Spaceship's Growth X Fund returned 19.20%.

Fractional property

How they work

Fractional property investments (FPIs) let anyone get a toe-hold on the residential property ladder with just a few dollars. Operating like unit trusts, FPIs are managed investment schemes that parcel property assets into tiny pieces for you to buy.

One provider is fintech company BrickX, which buys a property, breaks it down into 10,000 "bricks" with an initial cost between $33 and $154. Once investors buy bricks, they get their (pro rata) share of the rent. BrickX properties are valued every six months and investors receive their share of capital gains once they're sold, typically after five years or when they on-sell their bricks.

Then there's rival DomaCom, which pools investor funds (minimum $2500) to purchase commercial, rural and residential properties with capital growth upside. You can sell your units to other investors via the Domacom platform, and instead of buying units, you can buy the listed entity responsible for managing the DomaCom Fund (ASX: DCL).

As well as letting investors own a "fraction" of different properties, like BrickX and DomaCom, newcomer CoVESTA also lets investors target a property they wish to live in. For example, a couple may be able to afford buying half the 100 units that CoVESTA divides properties into, with the remaining 50 units being offered to outside investors from the CoVESTA platform.

Pros and cons

Investor needn't buy a property outright, or acquire a hefty deposit, and are less exposed to losses on any single investment. Unlike real estate investment trusts, you get to select your own portfolio of individual properties and decide how much of each you want to own (maximum limits apply). While some providers let you sell any time, how long it takes to exit can depend on how fluid the secondary market is.

Key providers

BrickX, DomaCom and CoVESTA. Then there are co-ownership platform Kohab and BlochExchange, which is being brought to market via the blockchain.

How much it will cost you

BrickX charges a transaction fee of 1.75%, a 6% annual property management fee and 9 cents per brick annual audit and valuation fee. DomaCom charges an annual platform fee of 0.88% on the value of the property, with property management fees coming out of gross rental yield.

What have returns been like?

Rental yields and valuations on BrickX's 18 properties range from 1.11%-2.87% to -8.22%-1.67% respectively. Estimated returns on "active" properties on the DomaCom website range from 0%-28%. Gross rental yields on its 60-plus residential, rural and commercial properties are 2%-5%, 6% and 9%-11% respectively.

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Mark Story is a freelance writer.
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