Crowdfunding as Portfolio Diversification

Crowdfunding is investing. It may not be mainstream investing, and you cannot do it through the same interface that you manage your 401K with, but that does not mean it doesn’t belong as a part of your portfolio.

Every investment advisor recommends diversifying your portfolio. Yet in a way, almost all of our portfolios are completely skewed. They are almost entirely focused on large publicly traded companies, or bonds from those companies, or materials. Very, very few of us invest in small business startups (in “small” I mean the traditional definition: less than 500 employees and less than $1 billion in assets). Even fewer of us invest locally.

Thinking Outside of the Fortune 1000

If diversification is as important as the financial experts say it is, equity crowdfunding may be a perfect fit for balancing out 10 or 15% of your investable assets into a real emerging market. Of course, as with any investment, we’ll all need to do our homework to make sure we’re buying into something worthwhile. But that’s part of the fun – you get to take your money and put into something you believe in, not just another bluechip corporation that you hold because it is a stable long-term value.

Even if you drop the idea of funding a musician’s first record on Kickstarter, think of investing opportunities in your own community. Making crowdfunding platforms offer ways to sort projects by location. This lets you not only support small projects you like, but it lets you support someone in your community as well.

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