Cash, bonds and stocks, collectively called traditional investments, are what most people think about when looking to invest, diversify their portfolios or build wealth. But did you know there is a class of alternative investment options that do not revolve around these three? These investments were available to investors who could invest large amounts in the past, but they have since become more accessible to all investors regardless of their budgets. So, which alternative investments should you know about?
Real estate is a broad investment category, but all its facets entail buying, owning and selling property. Investors can buy duplexes, multi-family homes, office buildings, warehouses, apartment complexes and other properties. If they rent them out, they can collect monthly rent and earn a regular income.
There is a class of investors who buy property to hold it until it appreciates enough to make a good profit when they sell. Some will buy, renovate, and then sell. Your strategy will depend on how much capital and time you would like to spend on the property, as well as your investment goals and objectives.
This category refers to capital investments in companies not listed on a stock exchange or private ones. Some of the most common examples of this type of investment include:
- Venture capital – investments into startups and early-stage businesses.
- Growth capital – Investments to help companies expand or restructure.
- Buyouts – Purchasing a part of a company or one of its divisions outright.
Private equity investments require a lot of capital, so they are usually reserved for institutional investors or funds that specifically make them. Those who invest in companies directly can also provide mentorship, help with talent sourcing, or provide industry expertise depending on their agreement with the recipient company.
A commodity is a tangible asset and is typically a natural resource or raw material used to manufacture or produce other products. The best-known commodities include agricultural produce like soybeans and beef, precious metals like gold and silver, and crude oil.
Commodities have become a popular investment because they are an excellent hedge against inflation and are not sensitive to what happens in the market. There is also a direct correlation between their supply, demand, and price, making them an option for all investors.
However, predicting what could cause these prices to rise and fall takes understanding them in-depth. Fortunately, investors can lean on online resources and commodity experts like James Cordier to learn how to become profitable commodity traders.
Personal businesses are alternative investments too, and they have the potential to produce returns on a par with other high-performing investments. As with others, investing in a business is risky, but the upside of a steady and potentially growing income makes it worth it.
Entrepreneurs also get the benefit of choosing businesses that require low startup costs. For example, starting an online ecommerce business requires little capital, but can be highly lucrative.
They can also invest only a portion of their money into the business and the rest in other options to spread their risks and maximize profits.
These are another broad alternative investment category where you can invest as little as $100 with no upper limit. There are different types of collectibles you could invest in with excellent returns, including:
- Fine art
- Vintage cars
- Baseball cards
- Mint-condition toys
The strategy for investing in collectibles is buying physical objects hoping their value appreciates in time and their prices follow suit. Their main challenges are the cost of acquisition and storage and a lack of dividends until the investor sells them. However, the right collectible can fetch thousands of what the investor paid for them.
Private debt entails investments not financed by lenders like banks. They are also not traded in the open market. Instead, private and public companies borrow debt from investors willing to finance them.
In most cases, businesses need private debt for growth and expansion. The best way to invest in private debt is through private debt funds. Even though they have traditionally been only available to institutional investors, there are now options for retail investors.
They provide an excellent diversification opportunity, with investors making their money when the debt is repaid or through the interest it earns. When diversifying your portfolio, it’s important to consider options beyond the obvious ones. Alternative investments allow you to access options that would otherwise not be available to you, spread your risk, learn more about new types of investments, and earn