Written by Jim Wang
For most investors, it’s best to put your money in a simple three-fund portfolio and move on with your day.
But if you have the discipline and the time to do extensive research and due diligence, there are other opportunities out there worth considering.
After yet another year in a historic bull run, you might be feeling that the stock market is relatively expensive.
Now’s the time to do a little research into what else might be available. Should you seriously consider investing in assets besides stocks and bonds? Perhaps there are investments that can generate some passive income that’ll buoy concerns of a market fall.
I want to give an overview of a few of the other investment options most people will have access to.
One big caveat… experts were saying the stock market was expensive at the start of 2019. Then it had another historic year. 2020 may very well be another monster year. I’m not suggesting that you skip the stock market and pick one of these. I am suggesting you become aware of these options to see how they might fit with your overall strategy.
Long-time investors may cringe hearing the phrase real estate investing.
Despite the 2008 Great Recession asset meltdown, real estate can be one of the best tangible assets you can own.
Most investors start by owning a single-family rental property or a duplex. You may offer a long-term rental where tenants sign a minimum 6-month lease. If you live in a touristy area, a vacation rental can be more lucrative. Before purchasing a short-term rental, check the local zoning laws and neighborhood bylaws to make Airbnb-type properties are permissible.
You can hire a property manager to handle the day-to-day responsibilities of being a landlord. This alternative asset arguably requires the most ongoing effort.
Crowdfunded Real Estate
Owning rental property isn’t for everybody. Thankfully, it’s not the only way to invest in private real estate. Crowdfund real estate investing is similar to a local real estate investing club but can require less time and cash.
Crowdfunding can also be an easy way to directly invest local real estate markets across the country if you want to expand beyond your local market. While you may feel comfortable buying local properties, you may only want to invest small amounts of money for properties in other markets you’re unfamiliar with.
Online crowdfunded platforms let you directly invest in commercial properties and multifamily apartments. These properties have multiple tenants meaning you’re more like to earn passive income.
You can invest in equity financing deals that earn income from price appreciation when the property sells. Debt investments earn monthly income from rent and interest payments.
Accredited investors have the ability to hand-pick projects. Non-accredited investors will need to invest their cash in a non-traded REIT (real estate investment trust that hold a variety of properties. You may also appreciate these REITs for the instant diversification.
Commercial real estate investing, including crowdfunded, isn’t appealing to some investors wanting to avoid tenant-occupied properties. A less common property type is farmland.
Farmland investing can be a unique alternative to investing in commodities. You can invest in fields that produce these cash crops:
Another step to diversify your portfolio is holding property in multiple states and geographic regions. Like all alternative investments, cyclical demand and weather patterns can affect your potential farmland investment income.
A secondary income stream for farmland can come from alternative energy or cell phone towers. If you can find a parcel, you have more upside potential.
Investing in gold sometimes gets a negative perception. Precious metals including gold can be a good hedge when investors are uncertain about dollar-based assets. While physical gold doesn’t earn a dividend, it has been a millennia-long vehicle to store value.
Rare coins or physical 0.999 fine gold bars can be your best way to hold physical gold.
Jewelry probably won’t be a good investment as brands and styles change. Although you may consider buying pieces when the purchase price costs less than the melt value.
Another precious metal to consider is silver. The price per ounce is less than gold, which makes it easier to own if you have a tight budget. Also, silver’s price doesn’t move in direct correlation with gold. Gold’s price typically increases first but silver still has room to run.
Silver coins and bars are the best way to hold this metal and enjoy stable market values. U.S. coins with a mint year of 1964 or earlier contain mostly silver. These coins can be worth more than the face value of the coin. For example, the same 1964 quarter may only be worth 25 cents to a store cashier but as much as $6 to a coin collector.
If you’re comfortable with holding digital assets, cryptocurrency is one of the newest stock market alternatives. Bitcoin is the most well-known crypto coin. You may decide to buy a position to start crypto investing.
After that, you might branch into the lesser-known coins. Accredited investors have exclusive access to security token offerings (STOs) that are similar to private placements. These coins let you invest in a specific business which is a narrower yet more focused investment approach.
Cryptos can be one of the most volatile alternative asset classes. Although they can also be highly liquid like stocks and can be an interesting short-term move.
Years of low-interest rates have made bonds and other fixed-income assets less attractive. If you have a higher appetite for risk, you can invest in peer-to-peer loans. You lend directly to the borrower with these loans and can earn more interest income.
Banks usually keep the first portion of the interest payment and give you a reduced portion. For example, a 36-month bank CD may have a 2.00% annual yield. But a peer-to-peer loan may yield between 5% and 7% with a 36-month repayment term.
You earn monthly interest payments each time the borrower makes a payment. Although you can lose the remaining loan principal if the borrower defaults.
Small Business Loans
Do you want an alternative to investment-grade business bonds? You can also invest in small business loans. You can expect to earn a fixed 5% annual yield. These loans are asset-backed to limit your downside risk.
Owning fine art is another unique way to invest in something besides stocks and bonds. You may focus first on investing in objects from blue-chip artists like Picasso and Monet. Investments from these artists tend to have more stable values.
If you’re more aggressive, you may the Post-War or Contemporary periods if you can find undervalued objects. However, these works tend to drop in value
Before investing, research past auction prices for that particular object or artist. Also, look for a certificate of authenticity and other items of proof to avoid counterfeits.
A fun hobby you can turn into an investment is collecting fine wine. You may already have a competitive advantage if you’re an oenophile. Knowing which vintages are better than others is a good start. Expanding into different winemakers, vineyards, and regions are some ideas.
For each bottle you collect, your storage method and history of ownership (provenance) are two important factors for increasing resale value. Buying an entire case instead of a single bottle also adds a layer of authenticity.
Collectible vehicles can be another financial sweet spot. A Ford Pinto probably isn’t a wise investment but a 1964 Chevy Impala Super Sport can be a different story. Like your current vehicle, maintenance costs and insurance premiums will be recurring investment costs.
Collectibles and antiques can also be a good opportunity if you know what’s valuable. For instance, baseball cards and comic books from the 1950s have a collectible value. Yet similar items from the 1980s may only be worth the paper they are printed on due to overproduction.
As most alternative assets require a multi-year holding period to appreciate in value, certain collectibles can produce quick income.
Flipping collectibles for a certain craze can be lucrative. A classic example is Beanie Babies. More recent trends can include Pokémon or sneakers. Like swing trading stocks, you need to be aware when the trend is changing so you can sell and collect profits.
Your Own Business
Some investors say that investing in your own business can be the best investment. If you’re an entrepreneur, you may start a local or online brand. Maybe your community needs a self-storage lot, laundromat, or car wash.
This idea can require a large amount of upfront cash and time. Although you can earn lifelong income as your business provides value to others.
If you don’t have the time or vision to launch your own business, angel investing gives you exposure to new businesses. This can be a risky investing idea as you try predicting the next Microsoft, Airbnb, Spotify, or Facebook. But some of your seed money can eventually turn into a giant fortune.
Startup investing might be of interest to you if you currently invest in IPOs or private placements. If not, consider starting small and only investing money you are comfortable losing.
These are just a handful of the potential alternative investments available to you. Do a little digging and you might find something that piques your interest!
Article Courtesy of Forbes.com