How To Invest In Infrastructure [Step-by-Step Guide] (2024)

As we plunge into 2022, many Millennials are pledging to get their finances under their belt. In fact, according to Broadridge Financial Solutions, the number of Millenials entering the investment space grew from 9% in 2017 to 14% in 2020.

For most, this means diversifying their investment portfolio. For some, this means stepping into the investing arena for the first time.

Wherever you may be in your investment journey, infrastructure is an excellent asset to invest in for the upcoming year.

In this article, we’ll detail how to plan your infrastructure investment goals, which stocks you may want to consider, and how the process works.

How to Invest in Infrastructure in Steps

To invest in infrastructure, the most important tool you will need is yourself. You will need a great depth of knowledge of the market so that you can make the wisest investment choice possible.

• Proper knowledge and research
• Starting capital
• An advisor

You also will need some starting capital. Most online brokers don’t require minimums to start an account, and you certainly don’t need a minimum to begin purchasing stocks.

But while there is no minimum amount needed to purchase investment stock, most investors have between $100 and $1,000 to get started.

And, while you do not necessarily need an advisor, it certainly is helpful to get the advice of either an in-person financial advisor or a robo-advisor such as Personal Capital.

Step 1: Defining Infrastructure

As it turns out, infrastructure is a rather broad term.

The more you dive deeper into infrastructure and what it means to invest in infrastructure, the more you’ll find out that this definition spans several sectors, ideas, and assets.

Oxford Languages defines infrastructure as “the basic physical and organizational structures and facilities (e.g., buildings, roads, power supplies) needed for the operation of a society or enterprise.”

In this sense, infrastructure differs vastly from traditional real estate investments as investors invest in structures that help society function. These spaces are spaces for the public versus real estate, where typically you lease out to private residents.

Still, you can divide infrastructure into several categories below that.

Here are the major sections of infrastructure that investors can pursue.

Critical Infrastructure Investments

Critical infrastructure refers to the type of infrastructure that comes to mind when you think of what society needs to function correctly. These assets are critical to society, the economy, and the government.

These are the most essential facilities:

• Shelter
• Heating/cooling systems/facilities
• Energy buildings
• Agriculture
• Public healthcare facilities
• Transportation
• Telecommunication
• Waste management
• Public education buildings

If you can afford it, these assets are the best to invest in because they are so critical to the health and functionality of our society.

Therefore, there will always be a need for these systems and buildings, and the demand will never disappear.

IT InfrastructureInvestment

When most people think of infrastructure, they think of hard and critical infrastructure, like transportation systems, electrical grids, public education buildings, and so on.

However, IT can fall into the infrastructure definition, too.

Many technical systems fall into the infrastructure category. Assets like networking equipment, servers, and other technological advancements are critical to the function of society.

Now more than ever, a vital IT infrastructure is paramount to the success of any company or business.

Without it, the business cannot perform essential functions.

Soft Infrastructure

Then, there is soft infrastructure. Soft infrastructure refers to systems that rely on human capital for their success. These systems usually employ human workers and assets to operate and provide services to maintain society.

Examples of soft infrastructure include the following:

• Health care system
• Financial institutions
• Governmental systems
• Law enforcement
• Education systems

Hard Infrastructure

Hard infrastructure is also known as tangible or built infrastructure. As you may have guessed by the name, hard infrastructure refers to physical assets necessary for the functioning of the economy and society.

Some examples of hard infrastructure are:

• Roads
• Highways
• Bridges
• Transportation vehicles (buses, cars, trains)
• Oil rigs
• Refineries

See related articles: What is International Development?

Step 2: Know Your Place

Because the government covers many infrastructure assets, many of these assets are not available to private investors. Still, markets have emerged, and space for private investors has arisen.

Some opportunities deliver a structured way of raising private sector capital to fund social infrastructure projects and provide private investors with a return on investment.

Though many assets are inaccessible to private investors, unlisted infrastructure is a growing trend for investment.

In 2016, there were 175 infrastructure funds globally, with a combined target size of $109 billion. Furthermore, a funding gap exists between current and targeted allocation, which means there is room for further growth.

See Related: Upgrade Loan Review: Is It Legit to Use?

Remembering the Bigger Picture

Okay, we’ve established that people can invest in infrastructure. But why does it interest you?

There are many reasons savvy investors are setting their sights on infrastructure.

For one, investing in infrastructure offers exciting benefits. Investing in an unlisted infrastructure asset provides investors with a real possibility to own and manage assets with an incredibly diverse user base.

While typical investment assets (like real estate) only allow you to interact with users of a specific demographic, investing in broader infrastructure assets allows investors to manage a much more diverse, broad base across the country.

Infrastructure EFT stocks especially offer access to a diverse demographic.

Secondly, these assets prove to be strikingly resilient to the ups and downs of the economy. Investors can have a piece of mind knowing that even when the economy enters recessions, there is still a great need for proper infrastructure.

Therefore, infrastructure returns provide a much more stable outcome than some of their counterparts.

Perhaps most importantly, though, is the ability to deliver long-term returns and provide relatively low volatility and unpredictability compared with other, more unnecessary investment assets. Infrastructure has and will always be critical to society’s success, so investors can depend on the long-term lifespan of their investments.

Infrastructure investments are so long-term, in fact, that these assets can typically benefit long contract lengths of more than 20 years.

Some assets like hydroelectric assets can span severaldecades.

See Related: Different Sustainable Infrastructure Examples

Step 3: Define Your Investment Goals

It’s also a good idea to set aside some time to understand what’s important to you.

• What are your financial goals?
• Does socially responsible investing matter to you?
• If so, what features are most important to you; would you like to invest in clean energy, or would you like to emphasize investing in opportunities that prioritize social issues?

It’s no surprise that infrastructure is a vital piece of society. The infrastructure allows for our country to function correctly. It enables transportation of water, IT information, passengers, food, and more throughout the country.

It provides places for the public to congregate, expand on skills, and work towards a better future.

It represents the physical backbone of the country and the country’s economy. As a result, there will always be a need for infrastructure.

Though it’s always been important, it’s now more timely than ever. As you may have heard, Congress and President Biden approved a shocking $1 trillion infrastructure bill on Nov. 15, 2021.

This Bipartisan Infrastructure Investment covers policies to rebuild the energy sector, upgrade interstate highway system, improve the supply chain infrastructure, and more.

This bill will give the nation’s infrastructure a major improvement. When you look at the bill, the infrastructure spending is broken down into these specific major projects:

• Roads and bridges: $110 billion.
• Clean water: $55 billion.
• Passenger rail: $66 billion.
• Power infrastructure, including clean energy transmission: $65 billion.
• Airports, waterways, and port infrastructure: $42 billion.
• Broadband internet: $65 billion.
• Electric vehicles: $7.5 billion.
• Zero- and low-emission buses and ferries: $7.5 billion.

As a result, a savvy investor may want to look more into roads and bridges, clean water, and passenger rail when choosing which stocks and investment opportunities to pursue.

The construction and mining equipment industry will also receive a huge boost because the tractors, excavators, compactors, and other machinery will be used to improve infrastructure.

Though, just because some items on the list receive less money, there are still plenty of opportunities to be found, especially in the case of clean and electric energy.

$7.5 billion into electric vehicles is nothing to sneeze at, and if you are passionate about clean vehicles, that is a worthwhile venture to pursue.

There has also been a large push in society to move towards a greener, sustainable infrastructure.

Investors can expect to see a sharp rise in more infrastructure opportunities as the United States and beyond rehauls and redesign how the energy sector, transportation sector, and more operate towards a greener future.

As you can imagine, this will significantly raise the number of opportunities in the infrastructure market.

When you understand what elements of investing matter most to you, you and your financial advisors can narrow which stocks you should invest in.

If you do plan to meet with an advisor, make sure you already have some idea of your plans going into the meeting so you and your advisor can be on the same page.

Step 4: Choose an Advisor

With the advent of better technology, investors are using the help of Robo-advisors and online brokers to help them navigate the process.

Of course, a more classic approach is to hire an in-person financial advisor to assess potential risks and rewards within the infrastructure projects you plan to invest in.

Robo-Advisors

As technology becomes more advanced, that is spilling over to how newer investors enter the investing arena. More and more people are using the help of robo-investors.

As you may have guessed by the name, these are “robots” or software programs that help you choose the most suitable investment by using mathematics and algorithms.

They provide financial advice, investment advice and help you sort out the best investments possible.

The big upside is that these advisors cost a fraction of the cost compared to hiring an in-person financial advisor. And, many robo-advisors are becoming so advanced they can even help you manage an SRI portfolio (socially responsible investments) if that is a priority in your financial goals.

If you’re interested in learning more, top robo-advisors are SoFi, Personal Capital, and M1 Finance are some top-rated companies that offer Robo-advisors.

See Related: How B Corp Investing Works: Does It Really Outperform?

Online Brokers

As the middle ground in expenses between robo-advisors and financial advisors, online brokers are perhaps the most popular option for crafting your investment plan.

Online brokers typically offer investment minimums, provide access to high-quality trading tools, and provide a team of knowledgeable, responsive customer service representatives.

As a moderately expensive service, you gain access to plenty of resources to help you reach your investing goals.

Top examples of popular online brokers include:

• Robinhood
• E-Trade
• TD Ameritrade

See Related:

Financial Advisors

Financial advisors are perhaps the most expensive option. These are knowledgeable, experienced advisors with full knowledge of the current investment landscape.

As a result, they can advise you on reaching your financial goals best.

When you hire a financial advisor, you know they have been vetted and are regulated to give you the best information possible.

In most countries, financial advisors must graduate from elite, specific training and are then registered with a regulation to ensure customers receive the best advice possible.

When you work with a financial advisor, you work with their private company. A financial advisor will help narrow your investing goals to make them specific and authentic.

The financial advisor will then work with you and guide you through the market to reach those goals.

If you can afford to purchase the help of a financial advisor, they offer excellent support and advice. Additionally, they will drastically limit the amount of risk when investing in assets and stock options.

Step 5: Decide Between Stocks vs. EFTs

Once you’re ready to take the plunge, decide whether you want to invest in a stock or an EFT (Exchange-Traded Fund). Both options have benefits and drawbacks. If you’re new to investing, you should know that both options provide tremendous benefits and that successful investors typically use both to build up their portfolios.

A stock is when you’re investing in one company, whereas when you purchase EFT stock, you invest in various companies.

Really, with an infrastructure ETF, you’re investing in the entire market versus one sole winner.

Planning out whether you want to purchase a stock or an EFT takes a bit of knowledge of the market. And deciding which stocks and EFTs to back can be complicated.

That’s why most people solicit the help of expert advisors to guide them through the process.

Popular General Infrastructure Stock and ETF Options

Between personal stock options and ETF stock options, a handful of industry leaders have risen to the top. For best stock options, there are three companies that are currently dominating the field.

• Brookfield Infrastructure
• Enbridge
• Crown Castle International

However, there are plenty of stock options on the market. Make sure to pick stock options that align with your personal goals instead of selecting the most popular options. Many investors are now choosing stock options based on how they fit into their SRI (socially responsible investing) plans. In this case, you can select a stock based on how ethical a company proves to be.

For ETFs, there are just as many options as there are for stocks. However, according to Investopedia, there are three infrastructure stock ETF options worth looking into if you feel called to diversify your portfolio.

These companies are:

• Alerian Energy Infrastructure
• Global X U.S. Infrastructure Development
• iShares U.S. Infrastructure Development ETF

Again, it’s always a good rule of thumb to choose EFT options based on how they align with your personal investing and financial goals rather than selecting an EFT based on what is the most popular.

Involved Risks

Every investment opportunity comes with an associated amount of risks. Investing in infrastructure is no different.

What makes infrastructure investments so unique is in addition to the inherent financial risks that all investments carry, infrastructure assets bring many other associated risks: operational, government and policy, and more.

Investors must make sure to calculate these risks into their plans to determine if choosing an infrastructure asset to invest in is worth the risk.

Operational Risks

The unique aspect of infrastructure assets is that these assets are designed to be operated and consistently used by the public for years. As a result, operational risks materialize when an infrastructure asset is active. The risk could manifest itself by use-rise and performance risk or from maintenance risk.

Investors define performance risk as the chance that the objective of the asset may not be met. For example, the acquisition could fall short of price objectives, which would lead to less of a return on your investment.

Additionally, the fully functional asset cost could also have unforeseen expenses, which would raise the price of the asset itself and lower the investors’ chance of return.

In terms of maintenance risk, there could be unforeseen maintenance costs that would reduce the level of return for an investor.

Before investing in an infrastructure asset, consider how much wear-and-tear the system could take before requiring additional maintenance.

Is this an asset that people will use daily, increasing the need for regular maintenance? Or is the acquisition regulated and protected against these risks?

An example of this would be an electricity grid, as it is not exposed to the daily shuffle of people.

Government Risks

As stated, infrastructure assets are part of the government. In a lot of ways, that’s what makes them so enticing. Because they are part of the government, there will always be demand for these assets, and the government will always take care of them properly – so long as the assets prove to be a worthwhile project for society.

However, that also means that these assets are subject to interference from political and government entities. These assets are buildings and systems that governments use to help society flourish.

However, investments are subject to heavy regulations. And, if one day the government decides to end the venture, there is little an investor can do to sway their mind.

Still, if you are concerned about these risks, you can invest in assets that are almost guaranteed to stay for years to come, like bridges and roads.

Construction Risks

Infrastructure investments present a unique risk in that some of the assets may have to undergo construction. When assets undergo construction, there are a lot of unreliable variables. Weather can impact construction and cause delays, and unforeseen circ*mstances can cause delays, too.

Many investors like to back assets that utilize newer technology. Of course, since this technology hasn’t been fully vetted, problems can arise with technology itself.

As a result, returns in investments can take longer or be reduced in general.

Frequently Asked Questions

As with any investment opportunity, there is a lot to know before diving in and buying stock.

Here are the answers to some frequently asked questions to help arm you with as much information as possible so you can make the most knowledgeable decisions when you decide to invest in infrastructure.

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