How to Begin Investing as an Immigrant in the United States

How to Begin Investing as an Immigrant

Camino Financial10 Jan 2024

Disclaimer: This article does not intend to provide individual investment advice, but instead provides general information about how to begin investing for general educational purposes. Questions regarding your individual financial circumstances should be directed to a trusted and qualified, certified finance professional.

Like any business owner, an immigrant business owner must learn how to begin investing to grow their business. Investing money is one of the most powerful things you can do to help your business, and your family, develop stability and generational equity. Investing is also critical to make your business profitable and increase revenue. Investing generally means buying a monetary asset with the idea that it will provide a greater payoff in the future. Your investment will return value at a higher price than what it was originally purchased for, or it will provide a sustainable income. Compared to when you save your money as cash either at home or in a bank account (which actually may make your money lose value over time due to the rate of inflation), investing can allow your money and business to grow. While being an immigrant in the United States can certainly be an added challenge to growing a business, it should not be a reason to hold you back from reaching your goals as a small business owner and the American dream. Even if you do not have a Social Security Number, you can still learn how to begin investing in your business.

Why Might an Immigrant Small Business Owner Want to Begin Investing?

Investing is an important tool for immigrants to learn about how to grow their businesses, develop new streams of revenue, and build wealth. Although some investments can be risky, investing with a smart, reasonable, and long-term strategy can help produce wealth that an immigrant business owner otherwise might not be able to obtain. Many immigrants come to the U.S. for economic opportunity with only a little bit of money and the hope and dreams of working hard for a better life. By saving money alone, you are not as likely to build wealth than if you invest your money to grow with time. Particularly when you have a business, it is difficult to scale it unless you make investments to grow. When investing is done in a responsible manner, merely saving money cannot compete. As an immigrant (even an undocumented immigrant), there are many ways you can invest money in your business to help your company develop. Make sure to consult with a certified financial advisor or other trusted advisor before beginning to invest. It is important to be clear about how you can invest responsibly and avoid investments that are too risky and likely to make you lose money.

What Types of Investments Can You Make as an Immigrant Small Business Owner in the United States?

There are several types of investments you can make to work toward your goal of growing your business. Before we begin detailing them, keep in mind that a Social Security Number (SSN) might be required to invest in your business. Many immigrants are not eligible to have a Social Security Number. Here’s the good news: Some investment opportunities allow for an Individual Tax Identification Number (ITIN) or Employment Identification Number (EIN) to be used instead of a Social Security Number. The U.S. government’s tax agency, the Internal Revenue Service (IRS), gives Individual Tax Identification Numbers to foreign nationals who are working in the U.S. and pay taxes. An Individual Tax Identification Number is how many undocumented immigrants pay taxes to the government, which everybody must do regardless of their immigration status. If you do not qualify for a Social Security Number, consider applying for an Individual Tax Identification Number through federal Form W-7 at the same time you file federal taxes to the IRS. It is available in English and Spanish. By obtaining an Individual Tax Identification Number, you will have more opportunities to make investments in your business. Before learning how to begin investing, first, you need to decide what type of investment is the best for your business, your preferences, and your own risk tolerance. Below are four types of investments that immigrant business owners may consider:

1. Business Loans

A business loan is a form of investment in your business because it can allow your business to grow and provide greater amounts of revenue in the future. The best part is that there are business loans for immigrants. Citizenship is also not a requirement to take out a business loan. While immigrants who do not have a Social Security Number initially are limited in the type of credit they can immediately access, immigrants who have an Individual Tax Identification Number can apply for some business loans.

2. Bonds

A bond is a fixed-income type of investment. It consists of a loan you make to the issuer of that bond (a company or the government) in exchange for regular payments in the form of interest. The invested capital is amortized on the expiration date of the bond. Similar to stocks and funds, a person’s citizenship status is not a legal requirement for purchasing a bond. However, a brokerage company may require a person to have a visa or green card and/or a Social Security Number to open an investment brokerage account to purchase bonds. To purchase a U.S. government bond, the U.S. Treasury website allows for an Employment Identification Number instead of a Social Security Number. Some brokers that sell bonds also allow a person to provide an Individual Tax Identification Number instead of a Social Security Number on a case by case basis. Depending on the type of bond you purchase, you may not need a lot of money to get started investing in bonds. You can purchase an Exchange-Traded Fund version of the total bond market for less than $100. The return for bonds tends to be less than the return for stocks and funds. As an example, the rate of return for Vanguard’s BND ETF is 4.44% on average since 2007.

1. Stocks and Funds

Stocks are a form of investment in which a company is divided into shares, which are sold for profit in the stock market. When you buy a share in the stock market, you are investing in a small part of the profits and assets of a specific company. Funds are common reserves of capital that are established for a specific purpose. They are usually managed and invested by professionals. There are several types of funds such as investment funds, indexed funds, and Exchange-Traded Funds (ETFs). When you invest in a stock or fund, you are buying a piece of that company to own and become what is called a “shareholder”. There is currently no legal requirement that a person has to be a citizen or have a certain type of visa or immigration status to invest and own stocks or funds. But generally, immigrants will have to provide more documentation to open an account with a brokerage company. Some brokerage companies require an individual to have a visa or green card and/or a Social Security Number to open an investment brokerage account and make investments. These requirements come from company policies and internal rules, not United States law. The good news is that not all brokerage firms require a certain immigration status or Social Security Number to open an investment account. Some brokers allow a person to provide an Individual Tax Identification Number instead of a Social Security Number on a case by case basis. These brokerage firms might require the person to submit a paper application rather than apply online. A person who does not have a Social Security Number and is interested in investing can call a brokerage company and ask if they may apply by providing an Individual Tax Identification Number or another form of identification. A small business owner can consider investing any extra profits into the market to grow wealth for the business or their family. You do not need a lot of money in order to begin investing in stocks or funds. For example, you can buy an Exchange-Traded Fund version of the total U.S. stock market for less than $100. For returns, even with a conservative estimate, you can expect on average approximately a 7% rate of return over time when you invest in broad funds that cover the stock market as a whole, as the average annual rate of return for the American stock market is approximately 7-10%.

4. Real Estate

Another form of investment is buying real estate, which can provide profit through selling the property in the future at a higher value or by renting the property. For a small business owner, it could be a good investment, depending on the circumstances, to buy property for the business to operate. That way, the money that would otherwise be spent on rent can instead be invested and grow in value. You also do not need to be a citizen to buy real estate in the U.S. It can be more challenging to take a mortgage loan as a noncitizen, however. But it is possible. There are several immigrant-friendly mortgage lenders that will provide mortgage loans to individuals with an Individual Tax Identification Number such as Alterra Home Loans and the Latino Community Credit Union. Real estate investing does take more money upfront than stocks, funds, and bonds to begin investing due to down payments. Most mortgage lenders require you to put down 20% of a down payment in order to take out a mortgage. So, for example, if you want to purchase a house worth $280,000, you will likely need to have approximately $56,000 in cash for a down payment. The rate of return will depend on the market values of homes in your local area.