No matter how you go about it, investing is a smart way to make your money work for you. When we hear the word invest, most of us think of the stock market. It’s a great place to put money and watch it grow, however not everyone is ready to throw in every last penny for various reasons. Maybe you think it’s too complicated, or are afraid to lose money (both are untrue, but I used to think that too). Perhaps you want to take a bigger risk or get your portfolio a little more diversified(always a good idea!). No matter your investment strategy or current investment portfolio, alternative investments typically provide interesting and different options from the stock market. Here are a mix of investments I've had some experience and mostly good success with.
Peer-to-peer lending sites have been around for a while. The concept here is instead of you seeking out a lender, they in fact come to you (well - not you personally, but to one of these sites). As an investor, you can purchase what are called notes that are typically $25 each. Each note has a different risk level and interest rate associated with it. The overarching goal is to create an environment with individual loans funded by multiple investors, and individual investors funding multiple loans. This, in theory, reduces the risk for investors. Each month the investors, like banks, are paid back by each loan they funded, plus any interest.
I tried one of the more popular sites with the initial thought that after a few years I would accumulate a massive amount of passive income by continuing to invest in more notes with the payback plus interest from my current notes. What I found was that even though most of my notes were not considered risky, they still defaulted - some only a month or two after being issued. I was at best treading water, as a single defaulted loan essentially negates several successful ones. To be fair, this was about five years ago so the site’s vetting process may have improved, but I think there are better options out there.
Cryptocurrency may not be for those with a low risk tolerance and is the riskiest alternative I’ll delve into, but it’s certainly the most interesting. Cryptocurrency definitely falls into the high-risk and volatile and category. Bitcoin, one of the most well-known cryptocurrencies, soared about two years only to then lose 90% of its value - and this exact scenario has played out more than once. Admittedly, I’m still wrapping my head around the technology and valuation methods of this currency, but remain committed to learning the ins and outs because I don’t see it going away.
Since crypto first burst onto the scene a few years ago, major headway has been made in terms of mainstream accessibility and acceptability. Gone are the days of seeking out shady sites and storing coins on a wallet on your thumb drive. Sites like Coinbase make it easy to buy and sell the most popular digital currencies. There are even a few cryptocurrencies that earn what is essentially the equivalent to interest - some can even be as high as 6%. However, it’s important to keep in mind that the principal amount you invest can lose value similar to traditional stocks.
Many investors dream of owning real estate, which doesn't even need to be in the same country, and for good reason. Property investments can be a great alternative venture for several reasons:
You’ll start to generate a second income stream in cash flow almost immediately.
The real estate market doesn’t experience the same volatility patterns as the stock market.
Money generated from rent will help build equity in the property, improving your overall investment.
In favorable conditions, the value of the property will appreciate over time, resulting in a higher profit when you go to sell.
Now, all that good stuff doesn’t come without its challenges. For starters, you’ll need a sizable amount of capital before being able to get in the game. On top of that, taking on the landlord role can have its headaches. Finding tenants, obtaining permits, and property maintenance are just a few of the many responsibilities that will fall on your shoulders. If you are willing to put in the time and effort, then real estate is a great investment to try.
There's another possibility with real estate as well that doesn't require being a landlord and that's flipping houses. The idea here is you find a house that needs some work, fix it up and then sell it for a profit. Flipping homes has become popular and can have many challenges and be stressful as well, but it done right can be quite lucrative. I've never done it myself, but if flipping houses is something you might be interested, check out the guide here.
Looking for another way to diversity my types of investments, I came across Wefunder. I found it only a few months ago and I am loving it, but this is a totally different type of alternative investment than most individual investors may be used to. Wefunder is similar to the popular site Kickstarter, but instead of your money going towards other people’s projects, it’s invested in startup companies.
There are hundreds of companies out there doing great things, and through this site you can help fund them and get in on the ground floor. Typically, the idea is that if the company takes off and eventually goes public, you stand to make a very good return on your investment.
Be aware that investing in these types of startup companies comes with big risk. Many of these companies have great ideas and products, but that doesn’t mean they’ll ever catch on. Even if they do, the owners might not want to be publicly traded, and if they do, it may be a long wait. Some might be brand new with a small cap, others have are a bit more established and have a capitalization value that's more aligned with the traditional mid-cap level. I haven't come across anything that I would consider large-cap yet, but I'm sure they are on there.
To put it in perspective, some of 2020’s “unicorn” IPOs (privately held startups valued at US $1 billion or more) were private companies for over a decade. If you decide to invest, do your research to ensure it’s in a company you really believe in. Not only is it the responsible thing to do, but will help to soften the blow if your money ends up being gone for good.
Also, a fun perk of Wefunder investments is you receive updates from the owners and CEOs. They share pictures, videos, and other types of materials that show the company’s progress and sometimes even their product.
Similar to Wefunder, Fundrise is all about crowdfunding and is best described as an online real estate investment trust (REIT). It's like an investment group that provides individuals with the opportunity to invest in private real estate that isn’t typically available to the general public. Oftentimes, this can include large apartment complexes that are either new construction or under renovations to improve their value. You won’t pick out specific real estate yourself, but instead choose from a variety of investment objectives you’d like your projects to follow, and Fundrise will handle the rest. The high-level investment types are income, blend, and growth. No matter which selection you make, you’ll earn dividends which can always be used to reinvest.
Just like with Wefunder, you’ll get updates on all the properties your money is invested in. You will be kept informed of a new property, progress on renovations, or a successful exit and payout. I’ve been involved for a few years and have seen returns anywhere from 5-17% on individual projects. Really, the only downside is that most REITs are illiquid investments. You can get your money out if needed (but why would you want to!), but it’s not as easy as selling shares and transferring money.
Despite the relative illiquidity, overall, this is one of my favorite alternative investments. I love getting the quarterly dividend and as you can see has a pretty good track record of above average returns. I've even taken advantage of the automatic monthly contribution plans.
Last, but certainly not least, you can invest in yourself. By investing in yourself, you can boost your income dramatically. More money won’t solve your problems, but if you decide you still want to significantly boost your income, this is a great way of doing it. Taking a class, getting a certification, or going all out and earning a degree can all lead to higher-paying jobs. Keep in mind, even with an increased income, it’s not going to solve your problems and it's imperative to get in the right mindset and learn to live within your means!
Having a mix of traditional investments such as mutual funds, ETFs, individual stocks, and bonds in your investment portfolios is always a good idea, but there are other investing strategies to consider. Alternative investing may provide you with some good diversification in your long term portfolio that common investment strategies may lack, further shielding you from market volatility. These are just a few investment options as to where you can invest your money outside of the stock market. There’s a wide variety of long term investments and hopefully some of the above interests you. I know I’m always on the lookout for new investment ideas, so if you have any you really like, let me know in the comments.