Note that this article is not an endorsement of any alternative investment strategies or individual products, and “top” refers to popularity, which does not necessarily reflect quality. You must complete your own research, consult with your financial advisor, and choose products that are right for your financial situation. We do not have any relationships with the brands mentioned in the below article, and the ones listed are done so as examples.
“One of the only ways to get out of a tight box is to invent your way out.”
— Jeff Bezos
Most investors are well aware of stocks, bonds, and mutual funds. But you don’t need to just stick to tried-and-true strategies — there’s a whole world of alternative options for you to explore.
Bitcoin continues to make headlines by setting new records on a regular basis. What was once a way to pay for a pizza is now worth over $50,000 per coin.
Cryptocurrencies, such as Bitcoin or Ether, are primarily decentralized currencies that are built on blockchains. Crypto exists as a digital currency that’s secured by cryptography and has no physical form, meaning there are no bills or coin options for spending the money. It has gained significant traction in recent years and the prices have jumped rapidly, though past returns are not guarantees of future payouts.
You can start investing in crypto through mining coins such as bitcoins — or joining a crypto exchange like Coinbase or Binance for example, that allows you to trade in government-backed currencies for cryptocurrencies.
Returns on these options can fluctuate wildly, and the relative newness of these investments makes it hard to predict future prices.
Eddie Murphy learned all about orange juice futures in the 1980s, but it’s still not on most investors’ radars.
Commodities are another investment option, although they’re a bit more of a legacy investment. They consist of real goods or the bets against the future price of real goods including coffee, soybeans, and precious metals.
Commodity investments can be valuable for their contribution to the diversification of a portfolio. Additionally, they’re often sought after as a hedge against inflation. Many factors affect the return on commodities including demand, supply, geopolitics, and weather.
Commodities can be bought as a single item or as part of an exchange-traded fund (ETF) that invests in numerous commodities to create a portfolio. Some investors choose to hold on to the actual commodities, although this option is generally exercised only for precious metals — unless you have a silo in your backyard.
Investing in commodities is considered risky because of the many factors that can affect their price. Historical returns have varied greatly, but they’ve been between 0% and 6% in most years.
Small Business Bonds
Supporting local businesses isn’t just for people looking to add #shopsmall or #buylocal to their Instagram posts. Small Business Bonds™ are issued by small to medium-sized businesses to pay for expansions, upgrades, or refinancing.
Third-party websites registered with FINRA (the Financial Industry Regulatory Authority) match businesses with investors and allow you to fund a variety of small businesses to diversify your Bond portfolio.
Each month — assuming the offering funds successfully, you hold onto your Bonds to maturity, and the business makes no defaults on their payments — you get returns of a portion of the principal along with interest on the outstanding funds, which can make a great passive income stream.
When you make an equity investment in a small, local business, you might need to wait for years to see any return on your investment (if you see a return at all). Small Business Bonds™ start paying you within a month and provide a steady cash flow throughout the life of the Bond.
Although this is a relatively new investment choice, some Bonds can yield up to 9%*. A company like SMBX can connect you with small businesses to invest in — with a meaningful return — and also enable you to have an impact on your community.
Beauty is in the eye of the beholder, but value is determined by the market.
Some investors choose to invest in fine art products. Masterpiece artwork has the potential for solid returns because the supply is limited. The more famous the art piece, the more potential value it has.
A Monet or Picasso may not be in your budget, but that doesn’t mean fine art investment is out of the question. Options such as Masterworks have investment funds that allow you to buy shares in a piece of artwork or a portfolio.
Much like fine art, the supply of wine is limited, with many types and vintages commanding higher than average price. Fine wines also take years to properly age, allowing their value to increase over time.
But don’t start hoarding your Two Buck Chuck.
Before investing in wine, you should thoroughly research the industry and have storage ready for your collection. Wine needs to be stored properly, with appropriate temperatures and humidity, to retain its value. There are third-party storage facilities that cater to fine wines.
Unfortunately, it’s difficult to determine what price wine will command in the future — much like fine art. Also, because the investment is in a physical product, it can get damaged in a disaster or from improper storage.
Private Equity Startup Investments
If you’re sitting on a big pile of cash (and we do mean big), private equity investing might be an option.
Some private equity investment firms such as Republic focus on high-growth startups. These firms research new companies and provide funding in exchange for equity stakes. Investors can buy shares of any one of their listed startups.
The downside to private equity startup investing is that it may take many years for a fund or company to take off. Many startups, like Facebook or Uber, are cash-flow negative for years before becoming profitable or being listed on public exchanges. Unlike the aforementioned Small Business Bonds™, these investments don’t provide immediate and regular payouts.
To get involved with private equity investments, you’ll generally need to be an accredited investor, which might be a barrier to entry for a lot of people. An accredited investor needs to have a certain net worth — approximately $1 million in 2020 — or have certain levels of income in each of the prior two years.
Income Share Agreements
Student loans are an oft-debated topic these days with over $1 trillion in loans outstanding in the U.S. Students are desperate for other options, and the market has risen to their demands.
An income share agreement (ISA) is a contract between a financing company or investor and a college student, where you lend the student money for their education and then collect a portion of the student’s post-graduation income for a certain number of years.
The value of this investment will depend on a variety of factors including which school the student attends, their other financing options, and the career they expect to pursue after graduation. You’ll have to determine how much faith you want to put in the modern frat boy’s future earning potential. Any government involvement could also change the projected value of these investments.
Precious Metals and Stones
Though precious metals are continuously mined throughout the world, the supply is limited. Some countries set their currency value based on the gold standard, which means that governments have significant hoards of precious metals.
But it’s not just gold and silver that are being invested in. Crystals have actually taken off lately as an investment.
The growing demand for crystals is led by alternative-medicine practitioners and followers. As more people embrace alternative medicine as a healing strategy, crystals continue to increase in value. Despite an absence of clinical studies proving the effectiveness of healing from crystals’ energy, demand continues to rise — and along with it, the price of such stones.
You don’t have to believe in the power of crystals to profit from them.
Real Estate and REITs
The FIRE (financial independence, retire early) movement is a huge proponent of real estate investment. But what if investing in a property and managing it yourself isn’t for you?
Real estate investment trusts (REITs) allow investors to buy shares in a portfolio of rental properties. As each of these rentals earns money, the returns are shared proportionally with the investors in the fund.
REITs may be less risky than buying a single-family home and renting it out, although the risk of the investment depends on the diversity of the holds and the company’s management of funds. The return on REITs varies based on the housing market.
You can also build your own real estate portfolio by buying rental real estate, either commercial or residential, to create a rental empire. Many sites such as BiggerPockets can help you learn more about this type of investment.
Build Your Own Business
Owning parts of companies is fun, but what if you want to be the boss and run things your way?
Compared to the above alternative investment options, this venture will take a lot more time, energy, and research to get going.
That being said, some investors do jump into entrepreneurship, and one of the quicker methods is starting an online business, which can be based on services or physical products. The upfront investment involves researching potential products, building a website, and marketing your business, but the returns could be unlimited.
Most large tech companies started with small websites (think Amazon or Facebook), and some have expanded to the point where they’re worth billions. While most online businesses don’t reach this level of success, many still produce solid incomes for their owners.
If you have an idea floating around in your head, it might be worth a shot.
Being different and thinking outside the box can lead to great returns — although nothing is without risk.
In our list above, we’ve checked out 10 alternative investments that may not be on everyone’s radar. By looking outside traditional stocks and bonds, you might find higher potential rewards. From Small Business Bonds™ to real estate to building your own business, there are investments that can meet your long-term goals and diversify your portfolio.
*All estimated returns on principal + interests are not guaranteed. The statement is based on the following assumptions: 1) an offering successfully closes and an investor is allocated a bond or bonds, 2) that the investor holds their bonds to maturity and 3) that there are no defaults made by the issuer on any of the bond payments from issuance to maturity.