Top 6 Alternative Investments Based On Your Investing Strategy
Everyone’s portfolio is inherently unique: Your needs might be determined by the length of your investing period, how much risk you’re willing to take on, and how you size up the best opportunities for your goals. No matter what your objective is, there’s guaranteed to be an alternative investment, based on your investing strategy that can be the perfect complement to the rest of your portfolio.
The world of alternatives is huge, if not maybe even a little overwhelming for the first-time investor. The variety of options can actually help you, however. As long as you have a clear sense of what you want from your portfolio, you can determine what the best alternative investments are for your investing strategy.
We’ve broken down what some of the top 6 alternative investments are based on common investing strategies. Here’s what you need to know as you’re getting started.
For starters, let’s remember that not all real estate investments are created equal. Some can be tremendously speculative, while others might be as straightforward as owning your own home. When we talk about real estate’s ability to provide stable returns, we’re talking about the latter, as well as some other real estate investment types that are historically more even-keeled than others.
You may not realize it, but your home is an alternative investment. Your net worth includes the value of your home, and you can pull equity from it in several ways. The most common, of course, is selling it and—if you’ve bought it for less than you sold it for—pocketing the difference.
If you already own your own home, you might also want to consider purchasing other kinds of real estate as a portfolio move. This might include buying a rental property, shares in a real estate investment trust (REIT), or buying farmland. Each of these additional real estate opportunities tend to be some of the most stable around: rental properties can appreciate in value as well as offer passive income, and REITs offer fractional ownership of one or more properties.
Farmland investing—be it through the outright ownership of a farm or through a farmland investing platform like FarmTogether—also serves as a steady performer in the world of alternatives. More on that below.
Farmland investing offers a unique value proposition that real estate can’t: this alternative investment gives investors access to historically stable growth, access to a booming property type, and several revenue streams within a single investment. When you invest in farmland, you get the perks of real estate investing (stable returns) with a higher average rate of return over a shorter period of time.
For example, the average acre of U.S. farmland cost $2,000 in 2010. Now, that figure is closer to $3,160 per acre. FarmTogether’s slate of farmland investing opportunities have a target hold date of 10 years, meaning that investors could observe decade-long trends to see where farmland value might go in the future.
That’s far from the only reason why farmland investments deserve top mentions for alternative asset diversification. When you invest in farmland, you also avail yourself to an asset that has an inverse relationship with inflation. As inflation eats away at the value of the dollar, the price of agricultural products usually rise. Farmland becomes more valuable as the cost of the goods grown and produced there increase. You benefit from both, as you also get a share of the profits made at harvest.
This makes farmland investing a fantastic option for people seeking diversification through alternative investments. Its multiple revenue streams, historically steady value appreciation, and its inverse relationship with inflation all make it a great way to broaden and recession-proof your assets.
Cryptocurrency and derivatives
Neither cryptocurrency nor derivatives trading is for the weak-willed. Cryptocurrencies first gained Main Street awareness around 2017, which led to a major rally for common options like Bitcoin, Ethereum, and Litecoin to name a few. If you were prescient enough to buy one Bitcoin on January 1, 2016 for $432.36, it’d be worth just over $33,000 in 2021. Granted it’s hard to know up front that a crypto investment would garner that kind of yield, but the returns on many cryptocurrencies are unmatched.
Derivatives can also provide a sizable return, so long as you’ve got the savvy and fortitude to make the right calls. Derivatives, such as options trading and futures, can garner major yields—if you’re able to make the right call, that is. Options trading garnered plenty of attention earlier this year as GameStop stock rose sharply as part of a short squeeze that pinned several institutional investors who had shorted the company’s share price. When done correctly, options and futures contracts can give investors a tidy sum.
With these two investments, great reward definitely comes with great risk. Timing the market with options and futures trading is exceedingly difficult and inherently dangerous. That’s not stopping many retail investors from taking the plunge. In fact, one popular online trading platform gained 380,000 new users within the first 11 days of 2021 alone. The company already had 5 million users in 2020.
So if you want in on this high-yield alternative investment option, be ready to join an army of like-minded options traders.
Private equity and hedge funds
When you have a sizable amount of money ready to invest, but don’t want to go through the process of hand-selecting stocks, funds, bonds, and other investments, you’re likely ready to put some of this work onto a professional. For many ultra high net worth investors, you can’t go wrong with looking to private equity or hedge funds.
These institutions take the guesswork out of individual investing. Private equity funds manage a portfolio of investments that range from property to privately held companies, which use investor money to find maximum returns beyond what conventional Wall Street moves provide. Private equity firms usually take a long view on their investments.
Hedge funds develop strategies to make maximum returns on short-term holdings. These operations also manage money for individuals, often at high deposit minimums. There’s a significant amount of risk involved in working with a hedge fund. Namely, there’s a high risk of your investment potentially losing value.
Gold has taken on an almost shorthand way of talking about a stable place to park investment cash during turbulent times in the stock market. This commodity, as well as precious metals more generally, can give investors a smart place to put their money that has a track record of growth when conventional investment performance is all over the place.
Gold investors have not only protected their assets in a stable commodity, they’ve also seen their money grow. An ounce of gold in January 2016 would cost approximately $1,237. Today, that same ounce of gold would cost $1,741. The average price has fluctuated in that period of time, of course, but the general trend has been upward in nature.
One of the key benefits of farmland investing, for example, is less direct exposure to the commodities market. The farmland in which you invest is tied into the world of commodities because of the crop it grows. This can be a great advantage when agricultural prices increase. At the same time, your investing dollars aren’t tied directly into the commodities world, leaving you with other revenue streams as well.
What was once the realm of passionate fans and (lucky yard sale patrons) has turned into an alternative asset class that is a major force. Collectibles are a familiar phenomenon to just about anyone: be it for a mint-condition baseball card or the Notorious B.I.G.’s crown. Now they’re hotter than ever before.
Individual investors have entered the collectibles arena through fractional ownership opportunities. Now passionate fans can own a portion of a vintage Ferrari or any number of unique pieces of history. Granted, collectibles certainly aren’t for everyone: returns are far from steady, and sales can be sporadic. But, at the same time, there are few if any more interesting and unique ways to invest your money. And the demand for collectibles and rarities is likely to keep growing.
How the varied world of alternatives fits into your portfolio
No matter what you’re looking for in your next investment, the world of alternatives is likely to provide you with a unique value proposition. That might mean venturing into real estate, taking a rollercoaster ride with cryptocurrency, or going with a strong and stable performer like farmland investing. In the event of the latter, investing in farmland with FarmTogether can give you exposure to new investment types, market-leading performance, and a recession-proof way to build your portfolio.
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Disclaimer: FarmTogether is not a registered broker-dealer, investment adviser or investment manager. FarmTogether does not provide tax, legal or investment advice. This material has been prepared for informational and educational purposes only. You should consult your own tax, legal and investment advisors before engaging in any transaction.