Utilize these technology platforms and strategies to diversify away from stocks.
If you feel a large a percentage of your assets are too exposed to stocks, you’re not alone.
Building wealth through stocks is great as long as the market is going up. When things go sour, you have to maintain the fortitude to stay invested while your net worth plummets.
The good news is, since the devastating market tumble a decade ago, new laws and technology have combined to make high-quality real estate and other asset classes more accessible.
All investors can now invest in solid assets that earn stable yields in the ballpark of long-term stock returns. These assets aren’t new, but broad access to them through technology is.
Below is a list of seven ways to diversify away from stocks utilizing modern investing platforms. These platforms are backed by serious venture capital money, and operating well beyond startup stage. Hundreds of thousands of investors are now earning solid returns that aren’t tied to the stock market.
You can too.
These platforms all have low minimum investments and allow you to perform your own due diligence. A few of these are for accredited investors only, meaning a net worth of $1 million + or income over $200,000. But there are options below for non-accredited as well.
Perhaps the easiest real estate crowdfunding site to get started on is Fundrise. Fundrise has securitized its real estate investments into funds or eREITs as they call them. These are similar to regular REITs you might buy on the stock exchange.
The main differences are the fees are much lower and the yields are much higher. They also don’t trade on an exchange. You can buy at any time, and sell quarterly if needed.
But these are meant to be longer-term investments that last three to five years.
Fundrise returns consistent yields in the 8%-11% range. You can have these deposited into your bank account or reinvest. The company has made investing automatic by creating a diversified portfolio of real estate deals around the country.
You can get these high yields and diversification for a minimum of $500 with the Fundrise Starter Portfolio. UPDATE: The minimums have been lowered to $500. Fundrise is available to all U.S. investors, including non-accredited. Click the button below to see the impressive yields:
Read my comprehensive Fundrise review here.
PeerStreet is another real estate crowdfunding platform. But it operates differently than Fundrise or EquityMultiple. PeerStreet focuses exclusively on high-quality asset-backed debt deals. They partner with experienced lenders and developers to provide financing for small to mid-sized real estate projects.
You can invest a minimum of $1,000 per deal, allowing you to diversify your money among many different debt deals. These are first lien deals, meaning PeerStreet investors are paid first if in the event of delinquency.
They also have an automatic investing built into the tool. If you have money available, they’ll invest it for you based on a set of criteria you select. You have 24 hours to review the deal and back out if you don’t like it.
PeerStreet is backed by serious investors including Andreessen Horowitz (early Facebook, Twitter, Airbnb investors), and Michael Barry, the man who saw the real estate bubble of 2007 and profited handsomely and profiled in Michael Lewis’s book The Big Short(and portrayed in the movie by Christian Bale).
Read my comprehensive PeerStreet review here.
StreetShares is a small business lending platform. The company matches investors with small business owners, usually veterans, to provide loans.
Borrowers can get a fixed rate loan or line of credit. Investors fund those loans via veteran business bonds that pay 5% yields. Those bonds are available to non-accredited investors. So anyone can participate.
Accredited investors and institutions can earn higher yields from riskier deals.
What’s great about this site is you are supporting small businesses by providing needed financing. These investments are detached from the stock market because the businesses are more tied to localities and the hustle of a veteran.
Learn more at StreetShares.
4. Lending Club
Lending Club is synonymous with fintech (financial technology). They’ve been at this for more than a decade. On the platform, borrowers are funded by investors (you and me). Investors lend a minimum of $25 to various borrowers through notes.
By only investing $25 per note, you diversify your risk over many borrowers.
Borrowers can use the money for various purposes. When they pay it back, you get paid your money in small increments.
Since you’re investing in consumer debt, you’re essentially acting like a bank. However, rates for borrowers are much lower, and returns for investors are good compared to bonds or even stocks. They are not correlated.
By investing with Lending Club, your money is invested in a whole new asset not available ten years ago.
To automate, I recommend a tool called LendingRobot. Read how to set it up here. Combine Lending Club and LendingRobot and you have a very passive investing strategy.
Learn more at Lending Club.
5. Pay off Debt
Paying off debts to diversify away from stocks? How is that so?
Well, when you borrow money you pay interest. When you pay off debt, you get a guaranteed rate of return… the interest rate.
For example, if your variable HELOC rate is currently 5%, every dollar you put toward the HELOC is a 5% return on your money. Basically. Of course, you may receive some tax benefit from your mortgage debt or HELOC, so the return might be lower.
But consider credit card debt, margin debt at your brokerage, high-interest mortgages or HELOCs, to be an opportunity to deleverage and earn a return. The less debt you have, the less vulnerable you are to economic volatility.
I’m not saying to go pay off your mortgage if your rate is low. That’s another discussion. But I am suggesting you look at any debts you have as potential investments or opportunities to save.
Paying off debt is completely uncorrelated to stock market returns. If you have debts in the 7% plus range, paying it off or refinancing is a no-brainer.
Refinancing debt can save you a bundle. Especially the mortgage. If you can save a percentage or two on your interest rate, you can easily lower your payment by a few hundred dollars. The potential return on investment refinancing a loan is massive.
LendingClub isn’t just for investors. You can get very competitive rates on loans there.
You’ll put yourself in a better position for investing in the future, and for weather the next market storm.
YieldStreet is utilizing the same technologies and law to open new investment opportunities for investors. In addition to real estate, YieldStreet offers alternative investments such as low-risk legal settlement and litigation, athlete financing, and ride sharing fleets.
These guys are really pushing the limits of what is possible. YieldStreet boasts 8%-15% returns, and to-date have had no defaults on any of their deals.
Once reserved only for hedge funds and institutions, but YieldStreet is bringing it to the masses.
YieldStreet is only for accredited investors for now. Learn more here.
This is only six ways to diversify away from stocks. If you have any other ideas and want to chime in, please comment below.
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