A ‘lone-wolf’ approach to investment is still popular – do your own research, make your own decisions, and hope your diligence and judgement pays off.

But the exponential growth in crowdfunding and its attendant small investors since the JOBS Act of 2012 has highlighted the attraction of investment communities; strength in numbers can not only enhance the potential value of your portfolio, but also greatly enhance your knowledge and investment strategy.

By harnessing the power of webinars, blog posts, forums, and instant messaging you can tap into a pool of resources which can help shape your investment strategy and, hopefully, allow you to make better-informed decisions.

Communities also naturally gather investors with diverse backgrounds, each with their own area of expertise, enabling you to better understand crowdfunding raises outside your own fields, and opening up opportunities that you might never have considered alone.

The other major advantage is the ability to pool members’ capital to fund larger-scale investments; that bigger communal ‘investment bank’ then increases the likelihood of success for the business your community chooses to back.

Such a community also makes re-investment easier, as the enhanced capital allows for repeat crowdfunding raises to be met. So, if a business in which you have equity hits an unforeseen downturn you can expect your co-investors to stand firm with you, enhancing the chances of coming out the other side with profits rather than losses.

In tandem, private company issuers benefit from building their own highly engaged communities of investors; such ‘herd’ support gives a company more stability and independence than having just one or two significant investors who may look for gain in the shorter term, take more control of the company to that end, and swallow the bulk of any eventual profit.

However, choose your communities with care, monitor their advice, and ensure you are comfortable with their hints and tips before feeling the urge to team up. Due diligence, as ever, pays dividends in the long run.

IMPORTANT NOTICE

Investors should recognise and accept the risks associated with investing.

Certain investments may require you to keep your holding for periods of many years with limited or no ability to resell unless there is a strongly regulated secondary market.

You may also have limited access to periodic reporting, see your holdings decrease and increase in value, or even lose your entire investment.

Investors should decide for themselves whether to make any investment, basing this on their own independent evaluation after consulting with financial, tax and investment advisors.

The Knowledge Hub does not constitute financial advice whatsoever, but rather provides basic general industry information.

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