Alternative investments extend beyond traditional asset classes like stocks and bonds. They offer a means to diversify a portfolio and have the potential to provide more significant income opportunities. Consider these options the next time you’re looking to invest.
The Best Alternative Investments
Real estate investing can be an expensive investment to get into if you’re looking to pick up rental property or flip a home. Luckily, more cost-effective options still allow you to take advantage of this lucrative space.
Real-estate investment trusts, or REITs, are companies that own and operate properties intending to generate income through rent. These properties are generally commercial, including office buildings, retail stores, shopping centers, and warehouses. Some trusts also invest in apartment complexes.
Those looking to invest in a REIT don’t have to look any further than the stock market. While there are privately-traded REITs, most are public on major exchanges such as the NYSE. Like stocks, the value of REIT shares fluctuates with market trends and company progress over time.
Each REIT must also pay out at least 90% of its taxable income back to shareholders as dividends, often monthly or quarterly. They also help with investment portfolio diversification and are robust against recession.
Real Estate Crowdfunding
Real estate crowdfunding offers another means of tapping into this market without breaking the bank. Investors pool their money to purchase a property with hopes of turning a profit through management or a future sale.
Previously, real estate crowdfunding was only available to accredited investors who needed to earn over $200,000 each year or have a net worth higher than $1,000,000. Today, even unaccredited investors can get involved through crowdfunding sites. The Securities and Exchange Commission (SEC) limits how much you can invest.
The amount required to participate in crowdfunding varies by property and crowdfunding site. Remember that this money will be tied up until the property turns a profit. While the investment risk is low, there is still a chance of losing money in a bad deal.
Gold and Precious Metals
Gold has been a sought-after commodity for thousands of years, and its value typically only increases with time. Where the U.S. dollar is much more volatile, many use gold as an inflation-resistant investment strategy.
Silver is nearly as popular as gold and sees plenty of use in jewelry, coins, and silverware. It also serves as an essential metal for use in electronics and photography. For these reasons, silver can climb higher than gold or drop low due to market demand.
Other precious metals include palladium, platinum, and even copper in jewelry and manufacturing. These alternative assets speak well for portfolio diversity.
You can invest in precious metals through a physical purchase or by investing in products. Some exchange-traded funds (ETFs) follow indexes that focus on specific metals.
Investing in foreign currency is no more difficult than exchanging one country’s money for another. There’s a foreign exchange market (forex) for this very purpose.
Currencies change in value each day as supply and demand rise and fall. Other factors like inflation, economics, and a country’s debt can also play a role.
When exchanging on the forex, investors hope to buy currencies while the value is low and sell when high, similar to traditional asset classes. Trading always happens in pairs, with one currency replaced by another. One can exchange two currencies, but most stick to popular pairings like the U.S. dollar and the Euro.
Cryptocurrency is a relatively new alternative investment created using blockchain technology. Individual units called coins are “mined.” Each is carefully tracked to ensure authenticity and ownership.
Thousands of cryptocurrencies have risen out of various blockchains, signaling the popularity of the asset class. Some coins are worth more than others, with Bitcoin and Ethereum leading. Given the digital nature of the space, cryptocurrencies are subject to attacks by hackers looking to claim coins for their own.
Crypto investment opportunities hold much potential for the future as more investors look to digital currencies to generate income. However, an unknown future and the sheer number of currency types create a lot of volatility.
Public companies aren’t the only way to go for investment opportunities. While you can’t buy shares of privately-traded ventures, it’s still possible to make money through private equity funds.
Like a loan, investors contribute funds to private companies and receive returns with interest or shares when it reaches an initial public offering (IPO). It is possible to help fund an established business to get a new milestone, but many are startups looking to find success.
There are unknowns about investing in startup companies, but a private equity firm can help alleviate the risk. However, these firms generally require a significant amount of money to buy in.
Collectables represent physical objects investors can purchase and hold onto until they increase value. These alternative investments cover many items, but some historically stand out above others.
Modern and classic art pieces are among the most common collectible items, whereas others look to coins or comic books. Other worthwhile investments include antiques, mint-condition toys, baseball cards, vintage cars, and fine wines.
The value of these items can increase exponentially over time, leading to dollar items selling for millions down the road. It takes some foresight to know what’s valuable, and collectibles don’t generate any income until after a sale.
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Final Words: 6 Alternative Investments You Need In Your Portfolio Right Now
Alternative investments open the door to new opportunities that further diversify a portfolio. Those willing to step away from traditional investments can lower their overall risk and help protect against recession and inflation. While there’s no guarantee against loss, no investment collection is complete without at least a few of these alternative assets.