As an investor, you’ll have the opportunity to provide funding to several equity crowdfunding projects — effectively allowing you to become a partial owner in a number of different businesses. But is this a good idea?
Let’s start with an assessment of the pros and cons of equity crowdfunding.
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Equity crowdfunding works much like other forms of crowdfunding. Each project is publicly available, allowing patrons to contribute a specific amount of money to the project. The difference is, instead of contributing for a specific reward or to back a cause, you’ll be contributing in exchange for fractional equity in the company.
This is valuable to investors for several reasons. You’ll have early access to businesses that aren’t yet listed on the stock exchange. You’ll get to review thousands of different projects to find the best fit for your investing goals. You’ll also be able to do exhaustive research and understand each opportunity thoroughly before investing.
However, there are drawbacks. Equity crowdfunding projects tend to be more volatile and less predictable than other types of assets. You also have no real financial protection; it’s entirely possible that you lose every penny you invest.
Because equity crowdfunding can result in a win or a loss, it’s important to do your research in advance to determine whether a given opportunity is worth investing in.
These are some of the most important factors to consider:
No matter how you choose to move forward with your equity crowdfunding opportunity, it’s important to diversify your portfolio. That means spreading your capital out across a variety of different asset classes, industries, and economic areas. For example, in addition to investing in an equity crowdfunding opportunity, you can invest in stocks, bonds, real estate, and ETFs. Doing so will reduce your exposure to risk and stabilize your eventual returns.
Equity crowdfunding can be a lucrative opportunity, but it could also result in a total loss. Make sure you do your due diligence and continue following your overarching investment strategy; as long as you’re sufficiently prudent and well-researched, you should consistently see positive results.