Alternative investments offer more options to put your dollars to work
What are Alternative Investments?
When most people think of investing, they think of a brokerage account for buying and selling stocks and bonds. Certainly, that’s the most common approach to investing.
However, there is a rapidly growing number of ways to invest in private sector asset classes which can complement your overall portfolio. These “alternative investments” include a broad range of financial assets, such as:
Venture capital (equity in private companies)
Spirits (the alcoholic kind, not Casper)
Collectibles (trading cards, coins, stamps, etc)
Note: Private equity and hedge funds would also be considered alternative investments, but are typically restricted to institutional and accredited investors.
Historically, many of these alternative investments were only available to wealthy investors. Now, the internet, rise of crowdfunding, and the 2012 JOBS Act have combined to open up these asset classes for investment by a much wider range of people and at a lower entry cost.
Want to collect wine? No wine cellar needed! Just open an account with Vinovest.
Want to invest in residential and commercial real estate across the Sunbelt? No need to purchase entire homes or malls! Just open an account with Fundrise.
There’s an ever-growing list of these platforms bringing new opportunities to the market.
Why invest in Alternatives?
The diverse asset classes within “alternative investments” cover the full spectrum of risk and return profiles. So what are you looking for? Real estate, peer-to-peer lending, and small business loans are great for generating income, while startup investing, collectibles, and wine are focused on long-term growth, for example. Riding the volatility in cryptocurrency is vastly different from watching the generally stable returns of farmland. Once you define your goals, you can begin to narrow down the list of options.
I currently allocate 25% of my portfolio to alternative investments, including real estate equity, real estate loans, wine, and crypto. I’m looking for:
Returns relatively uncorrelated to the stock market. This diversification can help smooth your returns over time.
Compelling investments. Does it make sense to me? If yes, I’ll have more confidence in it and stick to my plan over the long term.
Engaging platforms that provide education and transparency about where my money is being used. (Fundrise is particularly great on this point)
Whereas public companies are subject to lots of regulation and regular sharing of financial information, you aren’t likely to find as much for these types of platforms. For that reason, I tend to stick with more mainstream options and only open an account once I’ve found sufficient data and third party/user reviews to guide my decision.
How to get started
In future posts, I’ll highlight various investing platforms by asset class that I’ve either used or believe to be high quality. Here are two platforms you can check out in the meantime...
Fundrise - Commercial and residential real estate. I opened a Fundrise account early in 2021. They have a great user experience and show you the exact properties where they’ve invested your dollars, along with providing regular updates on them. They offer a variety of strategies (i.e. income vs growth).
Yieldstreet Prism Fund - Multi-asset fund for broad exposure to alternative investments. I have not used Yieldstreet, but they are a large player in the alternatives space. If you’re looking for an “easy” button, consider their Prism Fund, which invests in 5+ asset classes.
For more options, check out MoneyMade.io.
And finally, here’s an Invest Like a Boss podcast where they review their listeners’ favorite platforms.