It’s one thing to know what an Alternative Investment is – but it’s another to know the best ones to target. Here are the top five alternative investments you should be considering.
The fact is, with interest rates at record lows, getting a decent return on cash in the bank is unlikely. This is encouraging savers to look elsewhere for alternative investments to boost their future wealth potential. Whether you’re a seasoned investor looking to diversify or are simply interested in dipping your toes in the water, alternative investments could be just what you’re looking for!
Why choose alternative investments?
Investing in the stock market via a Stocks and Shares ISA, Self-Invested Personal Pension (SIPP) or trading in a brokerage account is a great way to take control of your finances and build a substantial nest-egg for the future. But it’s not for everyone and many find the prospect daunting, time-consuming or simply boring.
For those that do invest in the financial markets, there comes a time when diversification is a wise move. That’s because we all know that keeping all your eggs in one basket is just asking for trouble.
So, whatever your reason, alternative investments could offer an interesting way to invest your cash.
1. Gold and precious metals
Gold is an investment as old as the hills and it’s stood the test of time as a way to store value. While the rise of cryptocurrency has taken the shine off gold for some investors, many still see it as a long-term hedge against inflation and economic uncertainty.
We are living through unprecedented times with the astronomic rise of money printing and global economies reaching record levels of debt. This makes many older investors extremely nervous, making gold a very tempting asset to buy.
While gold is the most sought-after of precious metals, it’s not the only store of value. Silver is another popular investment because it’s widely used in electronics as well as being worn as jewellery. Then there are other metals which have recently risen in popularity as commodity prices rise. These include platinum and palladium.
Gold, silver, platinum, and palladium can be purchased in its physical form as coins or bars. They can be delivered to your home for safe keeping or can be stored in a vault, so you simply receive a certificate of ownership.
An alternative way to invest in precious metals is through exchange-traded funds (ETFs), gold mining stocks, bonds, futures, and options. For beginners to investing, owning the physical bullion is the safest and simplest option. It’s generally thought that a 5% to 10% allocation to gold is a wise way to hedge and balance your portfolio.
Depending on where you live there may or may not be tax implications to owning gold.
Generally, gold is a fantastic way to diversify your portfolio because it doesn’t tend to correlate with any other investment asset class. Therefore, when equities are tanking, the price of gold usually stays strong.
2. Equity crowdfunding
While buying shares outright gives you an ownership stake in the business, this is only the case for publicly listed companies which are quite far down the road to being established. If you want to own a share in a company that’s just getting started a way to do this is through Equity Crowdfunding.
This gives start-up companies an opportunity to raise the money they need to grow, from retail investors. There are various equity crowdfunding websites set up to facilitate the transactions. For instance, AngelList, CircleUp, SeedInvest, Seedrs or Wefunder to name a few.
It works in the same way as buying equities in the financial markets – like buying shares in Amazon (NASDAQ:AMZN) or Tesla (NASDAQ:TSLA). This means you have the chance to make money if the company does well or you could lose your money if it fails.
Possibly the most famous equity crowdfunding success story belongs to Brewdog, which has raised over £100m. But it’s not the only success story. Cruise Automation was sold to General Motors (NYSE: GM) and early investors saw gains of 1,011%. Not all equity crowdfunding stories end in profit though, so it does come with risk. It can also take years before you’ll see a return.
3. Real estate
Buying property to own, flip, or rent out (short or long-term) is a very popular alternative investment. However, it does require large sums of money to get started or at least the means to get a mortgage in place. It can also involve a lot of work, responsibility and cost in the process of being a landlord.
A cheaper alternative to buying property outright is to invest in a real-estate investment trust (REIT) which is similar to an ETF or fund.
Real estate covers a mix of investments. Commercial real estate has suffered in the pandemic with a pivot to home-working leading to a decline in demand. But residential house prices have soared and it’s the subject of much debate as to whether this can feasibly continue.
A newer way to get into real estate investment is to buy private mortgages through a platform such as Paperstac (founded 2015). This connects mortgage owners with private investors rather than a bank. When buying mortgage notes you’re investing in property debt rather than real estate directly. You can expect to receive monthly payments that include both interest and principal on your investment. However, this is a risky investment, you need a large amount of capital to get started and there’s a chance you could lose it all.
Real estate can prove a good diversification for stock market investors as it often does well when equity markets sink.
Investing in digital currency has gone mainstream since the pandemic hit and sent economic stability into a tailspin. There are thousands of cryptocurrencies to choose from and the entire process can be daunting. The decentralized nature of many crypto assets mean they’ve got real potential to change the monetary system as we know it.
Bitcoin (BTC) and Ethereum (ETH) are by far the most popular and currently most stable cryptocurrencies to own. Others such as Cardano (ADA), Tether (USDT), Stellar (XLM), Polkadot (DOT) and Dogecoin (DOGE) all regularly make the headlines but are still in their infancy. And beyond that there are thousands of altcoins to choose from. Each of which promises weird and wonderful reasons to trust in the cause on the way to making a fortune.
Cryptocurrency is an extremely volatile asset, even Bitcoin and Ethereum experience wild price swings. It’s not for the faint of heart and getting started comes with a pretty steep learning curve. It’s also safer to store your crypto in a cold storage device such as a Ledger as the exchanges are at risk of being hacked.
For centuries people have enjoyed collecting things and nowadays there are many items investors can collect as a way of preserving wealth for the future. From traditional artworks to high quality alcohol such as whisky, gin or vodka, to sports memorabilia, comic books, sneakers (think Air Jordans, Nike Dunks, and Yeezys), pop culture, Lego, and now Non-fungible tokens (NFTs). NFTs are a form of digital crypto art which has taken both the crypto and traditional art worlds by storm in 2021.
All-in-all there are a huge number of alternative investments in the collectible’s category. Collecting can be a very enjoyable pastime because you’ve got something to show for your money and it can be a real talking point. But the downside to collectibles is where to safely store them to avoid damage and theft. Even with NFTs they need to be safely stored in cold storage on a Ledger for instance.
These five alternative investments are simply to give you an idea of what’s popular today. But there are many more fantastic ways to invest your money.