Alternative Investments You Might Want To Consider
If you are an investor, you are likely aware of the perils of not diversifying your investment portfolio. While stocks and bonds are two major asset classes often considered when investing, many are quite surprised there are other investment opportunities apart from the conventional exchange-listed securities.
Those who want to avoid trading through a broker or online discount broker often opt for alternative investments. In other words, you are not limited to investment options that are traded publicly, such as bonds, stocks, ETFs, and mutual funds. Considered one of the most dynamic asset classes, alternative investments also have unique characteristics.
Alternative investments can vary vastly in terms of structure and accessibility. However, they share a few key characteristics. For instance:
They are unregulated by the US Securities and Exchange Commission
Their correlation to standard asset classes is low (they don't move in a similar direction to other assets when market conditions change)
They are illiquid (they can't be easily sold or converted to cash)
If you are considering alternative investments, below are some of the options you can look into:
Peer-to-Peer Lending
Commonly referred to as P2P lending, peer-to-peer lending is considered relatively new. P2P services online offer loans for personal, business, or pretty much anything else you can think of. If you join other investors willing to loan money to others, you can fund the loan once a borrower qualifies.
No bank is involved in P2P lending. Typically, your money is pooled with other investors' money, and together you provide loans to qualified individuals looking for funds. Each month, you will receive a fixed repayment, including interest. Returns you get from P2P are often higher compared to other standard savings vehicles.
Gold
Gold is often considered a liquid asset, a long-term store of value, and a tangible inflation hedge. Seen as a strong competitor to stocks, gold is a sought-after asset class. Thanks to its low correlation with other asset classes, gold is considered a great diversifier.
If you are a small investor, it is recommended that you pick direct methods of investing. Typically, this includes purchasing gold bullions, bars, coins, or other physical forms of gold. A 5 to 10% gold allocation is considered healthy for the portfolio. It is ideal that you are aware of the factors that govern gold prices if you choose to invest.
Equity Crowdfunding
If you don't like the idea of owning your own business, you can look into owning a part of someone else's business. Startup companies that require funding can offer shares on equity crowdfunding websites. Should you choose to invest, you will own a part of the company and will be rewarded if the company prospers.
One of the highly celebrated equity-funding success stories is that of Cruise Automation. The company develops self-driving vehicle technology. General Motors bought the company in 2016, and investors profited handsomely. The downside, of course, is you will lose part or all of your money if the company you invested in fails.
Real Estate
Investing in real estate involves buying and owning properties. You can purchase a house, duplex, or multi-family dwellings like apartment complexes. Your income can come in the form of rents that you collect from tenants. Often, you will make a downpayment on a property, and the bank will finance the rest.
Before purchasing a property, you must ask yourself if you have what it takes to be a landlord. Keep in mind that the role can come with many headaches—accidents can happen, things break, and tenants can fall behind on their rent. You have options if you don't want to deal with the responsibilities of being a landlord.
One option available at your disposal is hiring a property management company to collect rent, make repairs, and deal with the tenants. While this can cost you money, it can spare you from the anxieties and headaches of being a landlord and dealing with tenants.
Another option would be to use an online investment platform that primarily focuses on real estate. Some companies give you the option to invest in residential properties without dealing with the responsibilities being a landlord requires. However, this kind of investment comes with risks and fees, so make sure you do some research first.
Final Thoughts
The alternative investments industry has grown dramatically, and investing in them has become easier than ever. However, you still need to be cautious as you explore these new investment opportunities. Start slow, do your research, and work your way up as you find out more about these alternative investment opportunities.
About the Author:
Rachael Harper is the Content Marketing Strategist of Bennett & Porter, a wealth management and insurance firm based in Scottsdale, Arizona. When not writing, she makes use of her time reading books and playing bowling with her family and friends.