September 14, 2020
5 Alternative Investment Ideas For Portfolio Diversification
Are you searching for real assets to help you diversify your portfolio? Ready to quit busting your brain on technical analysis or never-ending stock charts?
Whether you’re prepared for something different or yearning to kick it up a notch, there’s no end to the types of alternative investments you can add to your portfolio.
Remember, investing in alternative investments doesn’t mean you need to abandon what you’ve already been doing or what’s tried and true for you.
However, history has shown us that improving your alternative asset allocation can be an excellent way to earn long-term returns and hedge against other common assets' risks.
Here are five alternative investment ideas you can use to diversify your portfolio.
1. Real Estate Crowdfunding
Not interested in snaking a drain in your rental property or replacing the water heater? Thank goodness there’s an alternative to managing a rental property. Real estate crowdfunding to the rescue!
Crowdfunding is having its moment. According to Valuates Reports, the crowdfunding market was valued at $10.2 billion in 2018 and is expected to reach $28.8 billion by the end of 2025.
Take Diversify Fund and Roofstock, for example. Each crowdfunding company lets you come up with a relatively small amount of money to invest in real estate. Roofstock tailors your needs through a filter search by list price, desired return, location, and more.
Making an offer is free. If your offer is accepted, Roofstock charges a marketplace fee equal to 0.5 percent of the contract price or $500, whichever is higher. You can start collecting rental income as soon as you close, and your property manager handles the day-to-day operations so you don’t have to worry about those drippy faucets.
If you ever invent a time machine, you might want to go back in time and invest in farmland (in addition to investing in Apple and Amazon’s burgeoning beginnings). After all, if you had invested $10,000 in farmland in 1990, it would be worth over $199,700 today according to the National Council of Real Estate Investment Fiduciaries.
Not to worry though, with an ever-shrinking supply of land capable of production along with an increasing demand for food, supply and demand trends continue to appear favorable for farmland investing.
Accredited investors can create an AcreTrader account in minutes and invest in any of their thoroughly-vetted active listings. The platform allows retail investors to access high-quality farm investments more efficiently and also allows you to build a diversified farmland portfolio thanks to low minimum investments.
After you invest, AcreTrader handles all of the ongoing management, reporting, administration, and ultimately exit responsibilities making it a truly passive investment opportunity.
Mark Twain once said, “Buy land, they’re not making it anymore.” Such great advice!
3. Self-Directed IRA (SDIRA)
Okay, okay, I hear you. You’re thinking to yourself, “There’s no way this is an alternative investment.” But it is, and here’s why.
A self-directed IRA lets you invest in nontraditional, alternative assets like private company securities, cryptocurrency, real estate and precious metals. You may not have realized you can find higher earning potential through a self-directed IRA!
Here’s why a self-directed IRA differs from a regular IRA. Usually, brokerage firms and financial institutions only offer traditional investment options like bonds, publicly traded stocks and mutual funds.
Switch gears a minute. Let’s chat about self-directed IRAs. As with any IRA, you, as the account owner, can build your retirement account without any taxes on your investment gains. And did you know that you can use a self-directed Roth IRA to plop money into college savings and to pay for college? Cool, huh?
By the way, you can also invest in AcreTrader using a self-directed individual retirement account. Contact AcreTrader before you commit any funds.
4.) Equity Crowdfunding
Looking to support the “next big idea” and invest in startups? There are now several ways that investors can connect with and invest in promising startups looking to raise capital to grow their business.
Whether your interests and beliefs lie behind innovation in the world of technology, healthcare, or just about any other industry, platforms like AngelList and SeedInvest can help you find new opportunities and take an ownership stake in private companies.
These platforms vet companies looking to raise a round of funding and gather information to help investors make an informed decision on the industry outlook, management team, the company’s product or service, and more. The company raising the funds dictates the terms of the investment, including their valuation, the form of equity, amount they are raising, etc.
Once you have completed your due diligence and make a decision on your investment, they simplify the investment process with an easy way to place investments online in exchange for a stake in the company.
5. Peer-to-Peer Lending
Peer-to-peer lending is all about making loans and returning the proceeds of those loans to investors, just like a new startup operates. Banks can take a seat completely because peer-to-peer lending entirely cuts out the middleman.
Rather than investing your money through a bank or other type of lender, you invest directly in the loans taken out by borrowers on peer-to-peer platforms. Platforms include:
You can pocket more of the interest paid by borrowers. For example, LendingClub boasts historical investor returns between four and seven percent.
Get the Right Alternative Investment for You
How do you know which alternative investment is best for you? Great question. Here are a few things you might want to consider before you dive in:
Your risk tolerance: How much are you willing to invest — and potentially lose? Risk is one of the most challenging things to ascertain, but it’s fundamentally straightforward. Only invest as much as you’re willing to lose.
Your goals: What’s your ultimate goal? Do you want to make a million dollars in a month? (Who wouldn’t?) Are you looking for a more stable investment to save for your children’s college? Make sure your goals fit with your risk tolerance and probability for your investment to make money.
Research: Have you done careful research to make sure your investment checks all the boxes? It would be a big mistake not to spend plenty of time researching.
Your timeline: How much time do you have till you hit the “gotta have the money now” wall? In other words, do you need the money in 10 years? Eight months? What’s the turnaround time on the alternative investment you choose?
Which type of alternative investment (or investments! — plural!) will you choose?
Note: The information above is not intended as investment advice. Past performance is no guarantee of future results. For additional risk disclosures regarding farmland investing and the risks of investing on AcreTrader, please see individual farm offering pages as well as our terms and conditions.
This Stacking Benjamins Show interview features Carter Malloy who shed some light on how AcreTrader helps investors access the previously restrictive asset of farmland.
In the short video, hear from Carter Malloy, CEO of AcreTrader, on why we think AAA rated bonds are one of the best historical proxies to farmland.
Discover the top personal finance resources that can help you get on track with your personal finance goals and fid balance in your investment startegy.