Diversification is said to be the only free lunch in the investment world.
If your stock portfolio is heavily weighted toward one company, you can reduce your risk by purchasing shares of other companies.
The same is true for asset classes.
As your stock accounts grow with regular contributions and gains, your net worth becomes more tightly correlated to market fluctuations.
Depending on age and risk tolerance, market undulations may cause discomfort and put at risk your retirement.
Bonds and cash are the traditional ways to diversify assets and reduce risk, but those assets’ returns are terrible today.
Alternative investments are another option to diversify and achieve higher returns.
Technology and loosened laws have opened up exciting alternative investment opportunities for ordinary investors.
Before you Invest in Alternative Investments
The alternative investment ideas in this post may help you diversify away from stocks, lowering your market risk and broadening your asset exposure.
But please keep the following in mind:
- Alternative investments may carry greater risk than traditional investments (stocks and bonds).
- Since the author can’t know each reader’s financial situation, mentions in this article are not recommendations for individuals.
- Please complete your own research and consider your specific objectives before investing.
- Some of the ideas in this article are highly speculative; don’t invest money unless you understand the assets and can afford to lose some or all of your invested capital.
- Startup businesses, including investment platforms, may not succeed over the long-term.
Please also note that some of the investing platforms in this article are affiliate partners. I may receive compensation for referrals from bold links. Where available, I’ve linked to my reviews for more detailed information.
With that, here are some alternative investment ideas to diversify your asset allocation and reduce stock market risk.
1. Fine Art
Masterpiece art has outperformed the S&P 500 and gold since 1997 and has the lowest correlation to equities of any major asset class.
For two years, I’ve followed an online investing platform called Masterworks that has emerged to enable ordinary investors to invest in shares of fine works of art.
It works like this. Masterworks identifies fine works of art with the potential for value appreciation, then makes a purchase.
Next, they create a Delaware special purpose vehicle and file paperwork with the Securities and Exchange Commission (SEC).
Individuals can then purchases shares of the painting, becoming partial owners. After the painting appreciates, it’s sold, and investors collect profits.
Masterworks started with an Andy Warhol painting of Marilyn Monroe for about $2,000,000. Since then, they’ve offered more than 21 paintings on their site and more to come.
As of summer 2020, they’ve launched a secondary platform to provide liquidity and let new investors participate in previous offerings.
It’s a great idea that’s gaining momentum. Accredited and non-accredited investors are welcome, with minimum investments starting at $1,000.
Read my Masterworks review for more details.
The internet age is already a quarter of a century old. Property on the web changes hands frequently these days.
Popular words and easy-to-remember URLs have certainly gained value since the early days of the internet, especially the dot-coms.
Make an offer on a high-value domain to better your chances of profit.
First-time disclosure: I recently purchased an internet domain for $700 to reinvest profits from my blog back into the business.
Hint: the website name is related to what I write about here. I don’t have plans for it today, but I expect it to appreciate it over time, and it could be my next project one day.
A more ambitious option is to invest in websites for extra income. This involves buying an existing blog or website that is already cash-flow positive.
But don’t be mistaken; buying an online business takes a lot of work or requires hiring someone to do it for you.
You may be better off starting your own online business from scratch to learn how it’s done from the ground up.
3. Premium Wines
Serious collectors have long experienced the price appreciation of fine bottles of wine.
However, you need to know what you’re doing and protect your assets.
A new investing platform called VinoVest makes investing in wine easy, enabling regular investors to buy and securely hold exceptional bottles of wine as investments.
The startup helps you identify investable wines, then handles the purchase, storage, and insurance.
Wine investing is liquid, non-correlated to the stock market, and has a proven track record of returns.
You can start investing for a minimum of $1,000. VinoVest welcomes both accredited and non-accredited investors.
4. Farmland and Agriculture
Farmland investment returns have outperformed commercial real estate, gold, bonds, and even the S&P 500 since 1990.
But most of us can’t just buy a farm.
AcreTrader is an online crowdfunding platform that empowers accredited investors to invest in farmland and agriculture projects, making it possible to tap into these out-sized historical returns of 10% or more.
With crowdfunding, you buy fractions of the properties, participating in returns with smaller investment amounts. Properties are split into shares equal to 1/10 of an acre.
Minimum investment amounts range from $5,000 to $30,000, depending on the specific deal.
Farmland is an investment asset as old as time, but now you can access investments through an innovative technology platform.
Investors must be accredited to participate. Accredited means your net worth is greater than $1 million or annual income above $200,000.
Each deal type requires specific tax reporting, so be sure to consider the tax consequences before investing. Most deals pay an annual distribution in December.
Read my AcreTrader review for more information.
The last time I wrote about alternative investment ideas (2018), a few readers were aghast that I didn’t include cryptocurrencies. So here you go.
2017 was the year of Bitcoin. Based on the over-hyped blockchain technology, Bitcoin increased 1,369% that year (and soon after crashed).
Bitcoin was a classic bubble, following the diagram below.
Today, Bitcoin and other cryptocurrencies such as Ethereum, Tether, Bitcoin Cash, XRP, and Litcoin have passed the mania phase and are finding their places in the world.
Cryptocurrencies provide users a way to transact online and in the real world with non-governmental mediums of exchange. It’s the perfect currency for international criminals, ransom hackers, and speculating investors and traders.
I’m not enthusiastic about cryptocurrencies myself, but plenty of investors have profited handsomely, so who am I to say they’re wrong.
This technology and asset class is still gaining legitimacy, and central banks and regulators will undoubtedly have their say.
But if enthusiasts get their way, cryptocurrencies will someday rival central banks, making financial transactions more secure (allegedly) and anonymous.
For investors interested in participating in what could be the future of money, CoinBase is the place to buy securely, store, and sell digital currencies.
I continue to remain on the sidelines for this investment class. Still, some of you may be interested in speculating in these markets as an alternative investment to gold or cash. Tip: don’t speculate with more than 5% of your invested assets.
6. Veteran-Owned Business Bonds
The term high yield savings account has become an oxymoron. Marcus, the savings bank by Goldman Sachs, recently lowered their savings rate to 0.6%, and customers are saddened.
I was getting 2.6% on a CD up until earlier this year. The lower rate has dampened my forward investment income.
Low yielding bank accounts have pushed investors to stocks. But for those searching for stable returns with less volatility, small business bonds are one place to look for higher yield.
A company called StreetShares helps veteran small business owners acquire capital for their business cash flow needs by providing loans.
The borrowers are not startup businesses. They are established and profitable, and need help with monthly cash flow but struggle to conform to bank underwriting.
What’s really cool is that investors fund these loans. For a $25 minimum investment, residents of about 35 U.S. states are eligible to earn a flat yield of 5% on their money by investing in StreetShares Veteran Business Bonds.
StreetShares lends money to business owners at a higher rate leaving a margin for non-performing loans. Higher yielding investments are available to accredited investors.
This is an exciting investment product now available to individual investors. One downside is liquidity is restricted to a one-time window per year to be a reliable partner to their borrowers. Since StreetShares is not a bank, your money is not FDIC-insured.
Read my StreetShares review for more information.
7. Small Business Startups
The JOBS Act of 2012 helped to make it easier for startup businesses to raise capital. Since the passing of the law, companies can raise capital through equity crowdfunding. It’s like Kickstarter, but for partial ownership in a company.
Companies looking to raise capital share their business idea to attract investors on equity crowdfunding platforms or through a Reg A+ IPO. The platforms list pre-vetted startups and handle the investment transaction.
Non-accredited (non-millionaires) investors can invest as little as a few hundred dollars in a company. In return, the investor receives equity in the startup.
Three popular platforms in the space are:
Check those out to get a sense of the deals available and how they’re structured.
Each of these platforms enables ordinary investors to invest like a venture capitalist (or shark). That’s cool because you could be an early investor in the next big success. Though realistically, most of these startups will fail, and investors will lose money.
If you commit to opportunities on these platforms, keep your investments small and diversified.
8. Commodity ETFs
Probably the most traditional alternative investment idea on this list is commodities. Commodities have been traded on exchanges for eons, but only in the past two decades have they become easily accessible to ordinary investors via ETFs.
Investors can invest in gold, silver, oil, corn, natural gas, and many other commodities by simply buying placing an ETF order, just like buying a stock.
One of the largest commodity ETFs is the Invesco DB Commodity Index Tracking Fund (DBC), which tracks the performance of 14 different commodities. Fees are a bit high for the fund at 0.85%, but you’ll immediately diversify your portfolio into a different asset class in return.
Alternatively, you can choose which specific commodity in which you want to invest. For precious metal exposure, the SPDR Gold Trust (GLD), the iShares Silver Trust (SLV), and the ETFS Physical Palladium Shares (PALL) are all popular choices.
Read more: 25 Small Investment Ideas to Cultivate Wealth
9. Real Estate
Commercial and residential real estate is considered to be an alternative investment, believe it or not. So I’d be negligent to omit real estate from this list.
As you know by now, I recommend several different ways to invest in real estate because it’s a reliable asset with many benefits.
Traditionally-purchased real estate is your best chance to make excellent long-term returns. You’ll own a real asset with tax advantages, collect rent, and participate in appreciation.
But an easier way for beginners to invest is through real estate crowdfunding, and the Fundrise platform remains my favorite for new investors. You can get started investing diversified high-quality real estate with just $500.
Here’s my list of best real estate crowdfunding platforms.
Many first time investors look to a service such as Roofstock (review) to buy their first rental, which focuses on current rental properties and utilizes built-in investor metrics.
Conclusion – Alternative Investment Ideas
If any of these alternative investment ideas are interesting to you, please proceed with further due diligence before committing any money. Good luck.
Some alternative investment ideas on this list may become more palatable as the platforms mature. Masterworks, for example, was brand new two years ago when I first wrote about it but has blossomed since then.
Others, like commodity ETFs, farmland, websites, and real estate, have a long history of risk and return data. Consider their suitability for your investment objectives.
If you’re still only comfortable sticking with more traditional investments, these ideas are still interesting to evaluate as fintech platforms become more commonplace.
Keep an eye out for more alternative investment ideas and platforms, which are hitting the marketplace every month. The next big success story may be a few clicks away.
Do you have any favorite alternative investment ideas? Please share in the comments below.
This article was originally posted in August 2018, and updated September 2020.
Photo via DepositPhotos used under license.