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While stocks, bonds, and cash are considered the most conventional ways to grow and store your wealth, some investors use other asset classes like real estate, businesses or even art acquisitions to diversify a portfolio even further. These alternative investments tend to be more tangible and more direct than stocks, so they also provide more opportunities for hands-on decision-making and using personal expertise, which can make them a little more exciting than just following price movements in the stock market. In this guide, you’ll find an overview of several popular alternative investments to help you get a sense of what your wealth-growing options are outside of the stock market.
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Why Choose Alternative Investments
Investors seek out alternatives to stocks, bonds and cash for a lot of reasons. Some may find the stock market confusing while others just prefer more hands-on options where they can buy and sell real, tangible assets or inject funding into a new business idea they want to see grow. Still others choose to do both. They maintain a portfolio of stocks and bonds but add alternative investments as a way to further diversify their portfolio.
Real estate can offer some of the most generous returns at relatively low risk. Whether you buy and sell properties, build up a collection of rental properties or join other investors in crowdfunding or real estate investment trusts (REITs), it can be a good way to grow your wealth.
While the stock market can shoot up or plummet by thousands of points in a single day, real estate markets tend to be more stable. That doesn’t mean they are risk free. Housing bubbles do happen and some methods of real estate investing, particularly crowdfunding, can be extremely speculative. Investors still need to do their research and be aware of the potential risks with each investment.
While art is more often thought of as just a luxury item you can buy with your wealth, some investors use it as an investment vehicle, too. A collection of valuable artwork can grow in value with time just like real estate and other tangible investments. Like real estate, growing your wealth this way takes research and planning. You need to identify the pieces that have potential to grow in value and then care for and maintain the products so that they remain in great condition.
An art collection can also generate income for the creative investor. If you prove to be talented at spotting lucrative acquisitions, for example, you could sell your services as an art advisor or lend out portions of your collection to museums or studios for exhibitions.
Investing in a Business
For investors with an entrepreneurial spirit or a talent for coming up with exciting business ideas, growing your wealth by investing in your own business ideas may be one of the most rewarding investment routes.
There are a few ways you can go about this. If you want to roll up your sleeves and be actively involved in a business, you can use the cash you’ve been squirrelling away for the right investment opportunity to found and run your own business.
If you prefer a more hands-off approach, you can look for crowdfunding or other opportunities to invest in business ideas you think have potential. Investing in businesses directly like this gives you a much larger stake in the company than you can typically get for the same amount of cash if you buy shares on the stock market. Depending on how large a stake you get, you may even have some say in the direction the business takes.
Complex Alternative Investments
Where real estate, art and businesses involve a more straightforward process of looking for tangible assets that either have the potential to be sold at a profit or to generate steady income, complex assets can be a little trickier. While these have the potential to generate profit or steady income, they tend to carry more risk and sometimes require more complicated trading strategies to achieve the returns you’re hoping for.
All investments require research and planning before you put your money on the line, but these complex products require even more as you should be fully familiar with how they work and how to use them. When used correctly, however, these strategies can be just as profitable as other investments.
Peer-to-peer (P2P) lending, especially through online platforms, is an increasingly popular alternative investment option. Essentially, you use your personal savings to give out small loans directly to other individuals. In exchange, the borrower agrees to pay the loan back in installments at a set interest rate. That interest rate can range from around 5% to as high as 35%. The rate depends on the risk profile of the borrower. The higher the risk, the higher the interest rate.
As lucrative as it can be, P2P lending can be risky since you’re dealing with individual borrowers who could default on the loan. Since these loans are generally unsecured by any other asset, a default means you have to eat the loss. Diversifying your capital across multiple smaller loans to avoid the risk of a single default wiping out your entire investment helps. But depending on how high your risk tolerance is, the threat of defaults might make this option too risky for some investors.
Investing in farmland is functionally about the same as investing in any other real estate. However, unlike residential or commercial properties, the criteria used to evaluate potential deals is very different and your potential buyers will, likewise, have different priorities.
As an investor, rather than a farmer, you’ll typically be buying farmland for the purpose of selling it soon after or renting it to farmers. The profit potential comes from the fact that agricultural land enjoys remarkably steady appreciation. The demand for food never decreases, so the value of farmable land is unlikely to ever decline in value except in rare cases of land bubbles or if the land’s resources become depleted.
Moreover, the agricultural products you can grow on the land have an inverse relationship with inflation. That means that when the value of the dollar is eaten up by periods of rapid inflation — something that can hurt the value of conventional stocks, bonds, or cash assets — the price of food and agricultural products will typically rise in pace with that inflation. So, farmland can be a good way to hedge your portfolio against bearish markets and economic downturns.
Fine jewelry, like art, can be a great tangible asset to store or grow your wealth. Unlike art, however, the value is far less dependent on the subjective tastes and criteria of the times. The gemstones and precious metals used to make fine jewelry are inherently valuable, so the risk of the asset losing value as a result of changing aesthetic trends is far lower.
Not only do the raw materials ensure that it will always at least be worth the gold, silver or gemstone it’s made of, but the quality and aesthetics of the jewelry piece can also add to its value in the same way that artwork is made valuable for the skill and beauty found in it. A collection of antique or rare fine jewelry, for example, can end up being worth far more than the equivalent in unprocessed bars of gold or silver.
Moreover, precious metals and gemstones have an inverse relationship with the market. That is, when the economy trends downward, the value of these assets tend to go up. This makes fine jewelry a helpful asset for hedging your portfolio against bearish markets. When other assets start suffering from a stagnating economy, the increasing value of your fine jewelry can help make up for some or all of those losses.
With that said, fine jewelry doesn’t offer a ton of opportunities for steady income generation. It provides fewer options for, say, loaning out the collection or otherwise generating a passive income stream from it. It can be a great method for storing wealth and hedging your portfolio against economic downturns, but if you’re looking to generate passive income, other alternative investments might serve you better.
Some investors also look to storage properties as a passive income source. Storage properties — large warehouses or self-storage buildings — provide investors with an opportunity to lease or rent out space in the property.
With commercial or residential property, maintenance costs can run high since the facilities have to be livable or comfortable for people and the wear and tear of frequent use can get expensive. Storage properties, which act as a place for individuals or businesses to securely store goods, undergo less wear and tear, have lower operational costs and generally require less hands-on management.
Aside from businesses that might require lots of storage space on a rolling basis, the customers you rent or lease space out to will often be short term, requiring extra storage space for a few months at most. So, the amount of income generated can fluctuate from month to month in a way that renting out office spaces or residential units doesn’t.
Benzinga’s Best Alternative Investments
The investment platforms offer investment opportunities in alternative asset classes like real estate, artwork and farmland. Investors can buy shares in these funds and enjoy the returns of the underlying assets without having to fully buy or manage them.
Crowdstreet is an online real estate investment platform that lets investors choose from a wide range of real estate investment offerings to crowdfund. Crowdstreet investors are free to buy into managed funds, individual buildings or even build a bespoke investment portfolio that includes both kinds of deals.
CrowdStreet’s platform has a diverse range of property types, ranging from multifamily to office, industrial, self-storage and others.
- Accredited investors
- Long-term investors
- Investors looking to diversify from stocks
- User-friendly interface
- Diverse investment offerings
- Great investor resources
- Proven performance history
- Many offerings eligible for inclusion in self-directed IRA
- Accredited investors only
- Most offerings require a $25,000 minimum investment
-NOTICE- Benzinga has been alerted that Diversyfund has suspended its monthly dividend. This review will be updated once we investigate these changes to the platform’s dividend payments.
DiversyFund isn’t your average crowdfunding platform. You’ll find that the company puts a twist on the traditional everyday crowdfunding platform, beyond anything you can find online with a simple Google search. You only have to look under DiversyFund’s skin one layer to surmise that DiversyFund is a conscientious developer and sponsor and helps hedge risk through improved vetting.
DiversyFund offers a multifamily real estate investment trust, the DiversyFund Growth REIT, and its main goals are to increase cash flow and resale value. It’ll automatically give you access to multi-million dollar real estate assets.
- Those looking for an alternative investment beyond stocks and bonds
- Individuals who aren’t sure they want to be landlords in the traditional sense
- Investors who aren’t accredited
- Only need to pony up $500 to get started
- Open to investors all over the world
- No expensive broker fees
- You’ll only be able to access “blind pool” investments, which means that you can’t opt out of specific properties
- There’s only one real investment option, the DiversyFund Growth REIT
Arrived Homes is a real estate investment platform that focuses on building wealth through investing in rental properties. While most real estate platforms and REITs focus on commercial properties, Arrived Homes focuses on single-family homes as its source of rental income.
This focus on smaller properties allows Arrived Homes to sell ownership shares on individual properties to non-accredited investors with buy-ins as low as $100. Learn more about Arrived Homes with Benzinga’s review.
- Small- to medium-sized investors
- Investors interested in rental income
- Investors looking to diversify
- Buy-ins as low as $100
- Open to non-accredited investors
- Offers ownership shares in real property (and all the tax benefits)
- Multiple ways to earn dividends (rental income and property appreciation)
- Great way to diversify portfolio
- Open to self-directed individual retirement accounts (IRAs)
- Long hold periods
- No secondary market to liquidate shares
Have you ever dreamed of owning a Basquiat painting or one of Warhol’s pop art masterpieces? You can with Masterworks — even if you don’t have $1 million in the bank.
Masterworks is a new platform that allows investors to own shares of famous works of art. Artwork is held in a climate-controlled, secure environment while Masterworks searches for an independent collector or buyer to sell at a profit. When a piece is sold, you’ll receive a share of the profits proportional to your initial investment.
Investors will enjoy Masterworks’ easy-to-follow system and choice of famous art investments.
- You want to diversify your portfolio with alternative, specifically art, investments
- Earn returns up to 8-30%
- You’re interested in investing in art
- A dedicated art membership rep that will help you invest and answer questions
- Clean, attractive, easy to use platform design
- Requires a phone interview before you can invest
- Fee can be confusing for new investors
AcreTrader is an investing platform that makes it easy to buy shares of U.S. farmland and earn passive income, starting in just minutes online. The platform features actual parcels of farmland where investors can choose offerings to participate in based on their investment preferences.
Farm types range from Midwest Row Crop Farms to California Almond Orchards, but you don’t need to be an agriculture expert to get started. They have a very thorough underwriting process to vet the offerings, and present information in an easy-to-understand offering page on their website where you can get started with as little as $10k and 10 minutes.
- Investors looking for diversification away from stocks and other traditional assets
- Real estate investors interested in new opportunities
- Accredited investors with multi-year investment horizons
- Real, uncorrelated asset class with a history of consistently strong returns
- Highly qualified team with best-in-class underwriting practices
- The platform has some of the lowest fees that you’ll find in real estate investing
- Investment minimums are typically $10,000+
- Only open to accredited investors at this time
Yieldstreet is an online investment platform that specializes in alternative investment offerings designed to generate passive income and wealth for investors. The platform offers a 1-stop shop for a range of alternative investments ranging from real estate to structured notes and even art collections.
- Accredited investors looking to diversify
- Alternative investments to stocks and bonds
- Investors looking for passive income
- Easy-to-use platform
- Carefully selected offerings
- Excellent mobile app
- Full spectrum of alternative offerings
- Options for non-accredited investors
- Majority of investments only open to accredited investors
Groundfloor is open to non-accredited investors and private individuals looking for active real estate alternative investment. Groundfloor has great volume with more than 10 investments.
Individuals with small portfolios will also like the low $10 minimum and 0 investor fees. However, most of the loans are given to house flippers, and there is a risk of borrowers defaulting on their loans.
- Non-accredited investors: It is a good option for non-accredited investors who want to invest in an individual capacity.
- Private investors with small portfolios: Groundfloor charges a relatively small premium of $10, which private investors with small portfolios find attractive.
- Active-investors: Groundfloor is also ideal for investors who want to actively maintain and control their real estate portfolio.
- Charges the lowest minimums in the industry
- 0 investor fees
- Open to non-accredited investors
- Offers no bankruptcy protection
- High rate of an uncured default
- Many loans are for judicial-only states
FarmFundr is a crowdfunding investment platform that specializes in pooling investor funds for farmland. Its initial projects are based in California. In a unique move for crowdfunding sites, it invites investors to physically visit properties.
FarmFundr has the advantage of brokering through a Securities and Exchange Commission (SEC) registered broker-dealer, ensuring that investments meet a minimum level of scrutiny. To pass due diligence, investors must also be accredited. The company advertises high returns and also gives away a box of the farm’s products to each investor every year.
- California residents
- Investors wanting to be fully-managed
- Broker vetted with the SEC
- Founder has substantial experience in the farming industry
- Investors get personal attention and easy access to locations
- Limited selection of investments
- Relatively high investment minimums
- Relatively slow cash flow
Add Your Favorite Alternative Investments to Your Portfolio now
Once you find an alternative that appeals to you, do some more research and start building an investment strategy that helps you achieve your goals using that asset. Make sure to check back at Benzinga as you continue that research to learn more about these alternative investments.
Frequently Asked Questions
What is the safest investment with the best return?
Some of the safest investment options include high yield savings accounts, government bonds and rental property. Of those options, rental properties offer the best returns with an average return on investment of 10% to 12% and continuous monthly rental income. Moreover, the value of the property itself continues to rise so that should you no longer wish to manage the property, you still have the option to net a profit from selling it for a higher price than you paid.
What is the most stable investment?
Again, high yield savings accounts, government bonds and real estate all are considered to be fairly stable investments. Of those, real estate tends to do the best at keeping up with inflation since the value of a property is determined by estimating what buyers would be willing to pay for it in the current market.
Accelerate Your Wealth
Arrived Homes allows retail investors to buy shares of individual rental properties for as little as $100. Arrived Homes acquires properties in some of the fastest-growing rental markets in the country, then sells shares to individual investors who simply collect passive income while waiting for the property to appreciate in value over 5 to 7 years. When the time is right, Arrived Homes sells the property so investors can cash in on the equity they've gained over time. Offerings are available to non-accredited investors. Sign up for an account on Arrived Homes to browse available properties and add real estate to your portfolio today.