You’ve been investing for years and have heard the term “alternatives” bandied about in the media and are now wondering if you are at the point where you can pursue your curiosity and perhaps get involved.
Alternative investments can be a great way to further diversify and strengthen your portfolio, but before you dip your toes in the water, ask yourself,
- Are you already maxing out your current retirement vehicles?
- Do you have a sufficient emergency fund?
- Are you out of high-interest debt?
- Is your financial plan in place?
- Are you willing to risk losing a small percentage of your overall portfolio?
If - and only if - you answered yes to all of these questions, you just might be ready for alternative investing.
Alternative investments typically carry more risk and volatility than traditional investments. However, there’s also the potential for greater reward and exposure to new and creative opportunities. If - and, again, only if - you’re ready for alternative investing, here are three ideas for you to consider.
Start By Acquiring "Real" Assets For Potentially Powerful Returns
Real assets are tangible items with intrinsic value, like real estate, art, precious metals, wine, jewelry, collectibles, etc. One of the most common examples of a “real” asset is real estate.
There are several ways to invest in real estate, such as investing in physical properties like rentals or flipping homes. Or you could also invest in intangible properties like real estate investment trusts (REITs), crowdfunding, and opportunity zones.
Commodities are also a way to start acquiring “real” assets. Examples of common commodities you can invest in are gold, oil, natural gas, corn, and coffee. People often look at these assets as a good inflation hedge (they have a stronger correlation with inflation than most financial investments) and can also bring diversification to your portfolio. Similar to real estate, you can invest in physical or fund-based commodities.
Another form of “real” assets is infrastructure investments, which are physical assets you see in everyday life, such as bridges, roads, highways, and tolls. The primary source of financing infrastructure is through municipal bonds and private activity bonds.
You can also align some of your investments with your interests. If you’re passionate about modern art, perhaps you might acquire some pieces and invest in funds like ArtVest or Masterworks.
Think About Investing in Private Equity
Private equity is just that: private. It consists of companies not listed on any public exchange (like the New York Stock Exchange). Private equity includes funds and investors that directly invest in private companies such as IKEA or Deloitte. It’s a broad term that includes venture capital as part of a group, investing individually in startups as an angel investor where you may be personally involved in company activities, and growth capital, which can be either.
Venture capital involves investing in early-stage companies with the potential for massive growth but need the funds to get there. This route can be very risky as many of these startup companies at the stage you’re investing in have generated little or no revenue. But if the company is a success, you could also see very high rewards.
It’s important to note that these investments typically have holding periods ranging from 3 to 5 years. It nearly always takes a few years - and a lot of patience - to get your money back. But if the company is founded on a good idea and executes well, you could hopefully see a hefty profit if and when you sell your interests in the venture!
As with all investment vehicles, do your research and be convinced it’s a lucrative venture for you. Align your investment strategy with your other goals and values. If you’re really passionate about a startup and how it could make an impact, private equity may be an excellent alternative investment for you.
It Might Be Time To Invest In The Latest Alternative Investment: Cryptocurrency
We’ve talked a lot about cryptocurrency over the last several months, and it’s not decreasing in popularity any time soon. Perhaps one of the newest alternative investments on the market, cryptocurrency is a digital form of currency that can be exchanged online for goods and services.
Cryptocurrency can be an essential contribution to your portfolio, and there are many ways you can invest in it, such as:
- Buying full or partial coins (Keep in mind that one Bitcoin is nearly $40,000)
- Investing in cryptocurrency funds
- Investing indirectly with cryptocurrency stocks
- Opening an account with a company like Coinbase or Gemini to purchase coins on an exchange
Increasingly, you can also use crypto in your day-to-day transactions. If you just bought a house and need some new furniture, you can head on over to Overstock and buy a new couch with Bitcoin.
Before you dive into the world of crypto, however, assess your risk tolerance and goals to determine where this might fit into your strategy. There’s no doubt that this is a high-risk investment, so you must be in a strong place financially before considering this type of investment.
Get Creative With Your Investments And Diversify Your Portfolio This Year
The old 60/40 stock/bond portfolio will not work for everyone, especially extremely high earners. That’s where alternative investment options are worth examining and can really shine!
Alternative investments are another way to tie your interests, goals, and values to your money. Maybe you want to help fund a startup for a cause you believe in, or you’re passionate about wine and want your cellar to be the talk of the town.Whatever your goal, let’s see how an alternative venture could benefit you. If you have any questions about alternative investing and if it’s the right path for you, get in touch with our team.