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    Investing· Personal Finance· Real Estate· Unusual

    8 Alternative Investment Ideas for Asset Diversification

    By Retire Before Dad

    This page may contain links to our partners. RBD may be compensated when a link is clicked. See the full disclosure here.

    Alternative investment ideas to hedge against stocks. Consider these alternative investment ideas to diversify your assets. 


    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.

    Table of Contents

    • Before you Invest in Alternative Investments
    • 1. Passive Income Real Estate
    • 2. Cryptocurrencies
    • 3. Fine Art
    • 4. Farmland and Agriculture
    • 5. Websites
    • 6. Premium Wines
    • 7. Small Business Startups
    • 8. Commodity ETFs
    • Conclusion – Alternative Investment Ideas

    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. Passive Income 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. 

    I recommend several different passive 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. The Fundrise platform (review) remains my all-time favorite for most investors.

    You can get started investing in diversified high-quality real estate with just $10. You investments are spread into dozens of properties with just a few clicks. 

    I’ve been investing on the platform since 2017 and I add new funds every month. 

    Other crowdfunding platforms better suited for wealthy investors (invested assets >$1 million) include Peerstreet, EquityMultiple, Crowdstreet, and RealtyMogul.

    Here’s my list of best real estate crowdfunding platforms. 

    2. Cryptocurrencies

    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. 

    The stages of a bubble chart, used to help explain Bitcoin as an alternative investment idea.

    Jean-Paul Rodrigue / Attribution

    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 and BlockFi are the best places buy securely, store, and sell digital currencies.

    Coinbase makes buying & selling crypto simple.

    You can also buy cryptocurrencies on Robinhood and Webull.

    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.

    3. 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.

    What if you could afford to buy and sell paintings by artists such as Banksy and Basquiat, whose artworks have experienced 10-25% historical appreciation?

    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. 

    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. 

    5. Websites

    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.

    Those interested in investing in website URLs can look to any domain name registry or website host company to buy a domain and squat on it for a few years before reselling it.

    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. 

    Two popular websites for buying an online business are Flippa and EmpireFlippers. These marketplaces make it secure to search for and acquire existing, profitable online businesses.

    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.

    6. Premium Wines

    Serious collectors have long experienced the price appreciation of fine bottles of wine.  

    According to this article at Forbes, a diversified portfolio of wine bottles has lower volatility than stocks. Returns are historically higher, too (if you don’t drink them).

    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. 

    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:

    • StartEngine
    • SeedInvest
    • WeFunder

    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.

    If you’re planning to buy commodity ETFs, I recommend using a commission-free online broker such as M1 Finance to dollar cost average into ETFs over time. Read my M1 Finance review here.

    Read more: 25 Small Investment Ideas to Cultivate Wealth

    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.

     

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    Favorite tools and investment services right now:

    Credible* - Refinancing makes sense if you can lower your mortgage payment amount by a significnt amount. Credible makes it painless.

    Personal Capital - A free tool to track your net worth and analyze investments.

    M1 Finance - A top online broker for long-term investors and dividend reinvestment (review)

    Fundrise - The easiest way to invest in high-quality real estate with as little as $10 (review)

    *Advertising Disclosure: RBD partners with Credible which offers rate comparisons on many loan products, including mortgage refinances and student loans. This content is not provided by Credible or any of the Providers on the Credible website. Any opinions, analyses, reviews or recommendations expressed here are those of the author’s alone, and have not been reviewed, approved or otherwise endorsed by Credible. RBD is compensated for customer leads. Credible Operations, Inc., NMLS Number 1681276, not available in all states. 320 Blackwell Street, Suite 200 Durham, NC 27701.
    Retire Before Dad

    I’m a 45-year-old IT professional, investor, and blogger based in the Washington, DC metro area. My primary financial goal is to retire at age 55, one year before my Dad retired. I write about how to build income streams so you can explore the unusual. Read the whole story HERE.

    Filed Under: Investing, Personal Finance, Real Estate, Unusual

    Comments

    1. Please note: Responses are not provided or commissioned by the bank advertiser. Responses have not been reviewed, approved or otherwise endorsed by the bank advertiser. It is not the bank advertiser's responsibility to ensure all posts and/or questions are answered.
    2. Rodney Horner says

      September 10, 2020 at 11:26 am

      Condo’s can be a good investment like anything else with due diligence and at a a large enough discount to compensate for issues/risk. I purchased in the 80’s when they were a hated asset and in 15 years made 3 time my purchase price back when I sold. It was so cheap at the time even with association costs and mismanagement/fraud and lack of proper reserve funding I still came out fine, also it was a crazy cash cow for rental

      Reply
      • Retire Before Dad says

        September 10, 2020 at 11:56 am

        Condos can be OK, and sometimes the only option in expensive markets. But they are generally worse than properties without HOAs and restrictions. I bought my condo without the intent to rent it. After years, it became cash flow positive, but retaining the property was risky because of several condo-related risks, including complex age, bad management, and an integrated HVAC system (long story).

        I was also close to buying a second condo as a rental, but it fell through due to condo association restrictions on live-in vs. rental ratios. Would have made a great property in hindsight (seeing its price appreciation), but the financing fell through because of the condo restrictions.

        That’s great to hear about your successes over the long-term. I did come out on top after 13 years, but it was a bumpy ride. I would not buy another condo as an investment today.

        Reply
    3. Rodney Horner says

      September 10, 2020 at 11:32 am

      Also really enjoy your blog and have put to work several of opportunities you have written about. They are working quite well for the last couple of years. Thank you for bringing them to my attention. Fundrise, Streetshares, Lending Club and M1

      Keep up the great work, I enjoy your work!

      Rodney

      Reply
      • Retire Before Dad says

        September 10, 2020 at 11:59 am

        Glad to hear it! I’m an investor on these sites as well (except SS), and all have paid off, even LC after a pretty bad year. The longer they are out there as successful, the more I enjoy mentioning them to people. M1 just passed 2 billion in AUM, up from 1 billion in Feb 2020. Been with them and recommending since 2017.
        -RBD

        Reply

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