Knowing you have money for when you
retire is a comforting feeling, as I am sure we can all agree. But there are
many ways to ensure that you can continue having money when you retire. You can
have a pension scheme, or you can invest in crowdfunding. Both have their
benefits, but they also come with their risks. Both will require further
research to make sure you are getting the best for your money. And which will
give you the best payout once you retire? All this takes time. For some, it
might be too early to think about such things, but we can guarantee you that
investment now can potentially be the money you need when you retire.
Pros of Crowdfunding investments
Before knowing the benefits of
crowdfunding investments to secure your future, you must be aware that there
are different types of crowdfunding which will work. For example, donation or
rewards based crowdfunding investments will not help you secure a future for
your money. The two types, that can secure your money a future, are debt-based
and even more equity-based.
What is the difference?
Debt-based crowdfunding means you
lend a company or business money, and they pay it back with interest. Whereas
equity-based crowdfunding means you are buying a share of the business and can
make a profit from your share of the company. Each has their benefits for the
– Great range and creativity. There
are endless investment opportunities on a variety of platforms. This allows
you, as an investor, to have several investments, all with the potential to
secure the future of your money.
- More control over your investments. As an investor, you can choose to invest your money in a company that also shares your ideological beliefs.
- Less volatile. As crowdfunding is not related to other markets, such as the stock market, prices are less likely to suddenly drop.
- No link to banks and completely different operating systems and methods.
Crowdfunding is a great way to
ensure you have money when you retire if you want to avoid traditional routes,
such as pension schemes or banks. They also allow you to invest in the future,
ground-breaking technologies or ensuring that following generations have a
Pros of a pension scheme
A pension, similar to a crowdfunding
investment, is a long investment. However, you might not get out what you pay
in, because capital isn’t always guaranteed and there might be fees to pay.
Nonetheless, there are several benefits to having a pension fund.
- Compound re-investment. This means that any profits you make on your money are re-invested, so those profits start to make profits that are again re-invested and so on.
- Tax relief. Paying into a pension, normally, qualifies you for tax relief. The money you pay into an occupational or public pension is tax-free and if you pay into a personal pension, you can claim back the tax at the end of the year.
- Guaranteed income. A pension gives you a guaranteed payout each month or week. There are different ways of being paid from your pension, but all guarantee you a certain amount of money to carry on living during your retired life.
- Employer matched contribution. Some companies will even put into your pension an equal amount to what you are paying in. This means that from each pay-check, you are getting twice the amount paid into your pension.
Cons of crowdfunding investments
As it is with anything involving
money, there are bound to be some risks. Having a confident grasp on what the
possible risks of investing in crowdfunding are will greatly help you avoid
them when you are planning on investing.
- Borrowers miss a payment. This would mean you are waiting on that payment for a period of time, causing you to lose money during that time. At worst, you completely lose that investment.
- The company doesn’t take-off. You bought shares into the company via an equity-based crowdfunding, but the business didn’t mature into what was expected and those shares are now worth nothing and the company is making no profit.
- Unprotected money. Your money could be unprotected in some platforms. Always make sure your money is protected in one way or another.
Like in all investments, the risks
of it not paying off will always be present. Do your research, get as much
information as you can about the company you are planning on investing in and
read the small print. While some platforms do offer money protection, this
isn’t always the case.
The best way to avoid the risk is to
research, plan and do not put all your eggs in one basket. Invest in several
companies and spread the risk. Out of 10 companies, for example, if 4 fail, you
still have 6 to fall back on.
Cons of a pension fund
As a pension is also an investment,
there are similar risks to a crowdfunding investment, however, in this case, if
the investment goes wrong, it is not your mistake to deal with and your money
- Limited access. Most pensions will keep your money locked away until a certain age, normally one closer to the retirement age.
- Investment risks. As seen in the crowdfunding investment, there are risks in investing, however, pensions are slightly different. They have what are called “life-styling” so that your money gets moves from high-risk investments to low as you get closer to retirement age.
- Annuity has a price. An annuity is what guarantees you will have an income during your retirement, but you have to pay for it, as there is a chance you could outlive your pension.
- Death means no money. When you have bought the annuity, even if you were to pass several months into your pension, all your money would be gone.
- Decreasing value. Inflation will determine how much you get paid monthly once you retire. Although, you can pay for the privilege of your monthly payment to track inflation and remain steady throughout your retirement. You get paid less, but it will not vary due to inflation.
As seen above, both forms of
investment have benefits and risks. While a pension fund offers more security
and reduced risk, there are also fees to be paid for the privilege of having a
pension. On the other hand, crowdfunding investing can go very bad, very good
or anything in between. It also requires more research, but the rewards can be
a lot larger than a pension fund. That is because larger risks give larger