For most people, building some level of financial peace of mind for the future is a constant goal. Whether it's building financial security or planning for retirement, investing some of what you have now makes sense. Investing is all about using your money to yield a return instead of leaving money in an idle account.
Most people start out considering investments like stocks, a mutual fund, or bonds. This traditional investment strategy seems safe and familiar. And, they can yield attractive returns.
However, alternative investments add a new layer of diversity to a retirement or investment portfolio. And when you'll one day be on a fixed income, you need to be sure your investment plan sets you up well.
Unfortunately, these non-traditional investments are not so familiar. So, not every investor takes advantage of the opportunity. What are alternative investments? Below is a deep dive into alternative investments, including the most common types, their value, and more.
Understanding Alternative Investments
In simple terms, alternative investments are investments in an asset class that is not stocks, bonds, or any other traditional investment. The term "alternative investment" is an umbrella term encompassing a wide range of investment types. A few examples include real estate, startups, and cryptocurrency.
Alternative investments are not so tightly woven with the fabric of public markets. Therefore, their potential to yield return is more reliant on the specific asset's strength than the sometimes unpredictable market.
For example, even when the stock market is down, this may not define the value of a piece of real estate. Likewise, the profitability of startup investment may be more reliant on the business than the economy.
Thanks to the accessibility of alternative investment platforms, padding a retirement portfolio with assets beyond stocks and bonds is doable. Allocations of retirement investments in alternative investments are expected to grow substantially in the coming years.
And, the expectations are for good reason. Individuals with high net worths over $30 million currently hold about half of their overall assets in alternative investments.
What are alternative investment options?
When you decide to branch out into alternative investments, there is no shortage of options. The beauty of stepping away from the traditional asset classes is you have the flexibility to go after something you feel comfortable with as an investor. Take a closer look at some common alternative investments to consider.
Real estate investment is an alternative asset. However, investing in real estate for the purpose of a return has been around for a while. Therefore, a lot of people don't deem these asset investments as "alternative." Multiple options for investing in real estate exist, including:
Investing in property directly and "flipping"
Buying properties and renting for a return
Joining real estate investment groups (REIGs)
Investing in a real estate investment trust (REIT)
Participating in real estate crowdfunding through specific platforms
In short, there are two ways to invest in real estate: direct and indirect. As a direct investor, you own and manage the property. As an indirect investor, you may own a portion of the property. However, you don't have direct control over the property or managing it.
Direct investing is good for hands-on investors that know something about real estate. Further, this works out best for those that have the funds to buy and maintain the property.
Indirect investing is better for those who want the returns without the added responsibility. The indirect real estate investor does not deal with property management and doesn't need a lot to invest.
Commodities are a real asset that are raw products, materials, or goods that are in high demand for the production of other products. Several commodities are common alternative investments, including:
Precious metals like gold, platinum, and silver
Agricultural goods like corn, wheat, or other grains
Energy resources, such as natural gas or crude oil
Commodity-based investments tend to withstand market fluctuations well, even during times of inflation. This makes them a more sound investment opportunity in the eyes of some. The tangible assets are more comforting to some.
A hedge fund is a pooled investment fund that is put to work in different ways to yield returns for all investors involved. Hedge fund investment is considered riskier than a lot of other types of alternative investing. The hedge funds can involve making aggressive moves to increase returns, such as using short-selling or leverage.
Investing in startups is often referred to as venture capital investing. Made famous by shows like Shark Tank with well-known venture capitalists, startup investing can be profitable. Of course, the amount invested, and the returns, are typically more conservative common scenarios.
In short, you are investing in companies that are just getting started. In turn, you get a share of future profits. You don't even have to have thousands of dollars to invest in a startup. Modern platforms make it possible for everyday people to invest small amounts of capital, which helps reduce the risk.
Cryptocurrency has rapidly grown to be a popular alternative asset. Built on blockchain technology, crypto is a type of digital currency. Its value is determined by a number of factors, including supply and demand. As of 2021, 16 percent of people in the US have invested in, traded, or used some type of cryptocurrency.
NFTs (non-fungible tokens) are non-replicable, digital tokens that represent real-world assets, such as artwork or music. NFTs are digital assets that are part of the blockchain, they are traded online, and usually have similar encoding as cryptocurrency. Most NFTs are one-of-a-kind, even though a limited run of a specific NFT is also possible.
Private debt investment involves purchasing a business's debts. In exchange, you get returns in the form of interest that is paid over the life of the loan. Private debt investing is a little more complex than some alternative investments. Just the same, these investments are not publicly traded.
The Right Alternative Investment Platform Sets the Stage
Ready to move past some more traditional assets and dive into alternative investment strategies? They may enhance financial stability in the future.
Best of all, it's not rocket science to take advantage of alternative asset investments with Rocket Dollar. Our alternative investment platform paves an easy path to the world of non-traditional ways to put your money to work.