Small Cap Stocks, Index Funds and Trust Deeds

With better spending habits taking control of my finances, I anticipate investing more in 2006.

Here is a list of investments I made in 2005 and how they are doing:

I subscribe to a monthly newsletter on small cap stocks. Small cap stocks are small publicly held companies. By their nature they are riskier but have potential for great return. I have invested in 5 different small cap stocks in the last 9 months. My return has fluctuated and currently sits at about 5% for the year. Not really worth getting excited other than I am not losing money.

My second investment is an Index Fund which represents the entire market. In theory, if the stock market goes up the fund should go up. An Index Fund generally has lower expenses than mutual funds so some people prefer them for this reason. My return for the year is about 4.5%.

My third investment is in a trust deed. A trust deed is a note payable against a commercial property. The owner of the property promises to pay me a portion of the loan and interest each month. Trust deeds can be a risky investment. The borrower can decide to stop paying and then I would need start legal proceedings. This is a hassle and costly to do. There is no guarantee the borrower will pay timely either. At this point, I have been paid timely every month and my return is 10% on my money.

All three of the investments have pros and cons. My goal this year was to diversify into different investments hoping the small caps would give me a huge return and if not the other investments would still maintain a decent return. I can't complain so far and hopefully my investments continue to grow and I can add to them in 2006.