For most people, investing means buying stocks, bonds, mutual funds, or even exchange-traded funds (ETFs). All these are traditional investment options with good returns, no doubt. However, other alternative investment opportunities can also bring sufficient profits in addition to a well-maintained portfolio of stocks and bonds.
To create a well-diversified portfolio fit to weather inflation, consider these five alternative investments in 2022.
1. Peer-to-peer Lending
Peer-to-peer lending, or P2P lending, is still a new phenomenon that’s gradually gaining ground. Most P2P services are offered online and provide loans for business and personal use. P2P allows you to a pool of investors who loan money to qualified borrowers.
One thing about P2P lending services that sets them apart from traditional lending options is that no banks are involved. Instead, investors pool together funds and lead qualified borrowers who repay the loans monthly with a fixed interest. Such interests are typically higher than other loaning or savings services.
The only drawback to this alternative investment solution is the high risk of borrowers defaulting. However, you can always research the borrower’s background, including credit ratings, before deciding whether or not to fund them.
2. Real Estate
Investing in real estate most commonly entails property acquisition, residential, commercial, and more, with the intention of collecting rent each month. In addition to rental income, the hope is the property will appreciate.
However, acquiring a property comes with its challenges. For example, you’ll need to conduct regular maintenance and repairs as a property owner. There’s also the challenge of tenants falling behind on rent. And of course, a hefty down payment in many cases.
The best way to counter the property management challenges is to invest in a property management agency. This takes the responsibilities of managing the property off your hands. It comes at an extra cost, but the benefits are worth it. This company will be responsible for:
- Dealing with tenants on a day-to-day basis.
- Doing regular repair and maintenance.
- Collecting rent for distribution, and more.
3. Hedge Funds
Hedge funds invest in sophisticated types of securities to hedge against the risk of significant losses. Investing in a hedge fund can be a profitable investment strategy. However, there is risk, which calls for a calculative approach.
A hedge fund typically has two income structures. The hedge fund manager collects about 2% of the fund’s assets annually as a management fee in addition to retaining 20% of the fund’s annual profits.
Hedge funds use unique investment approaches, so you can choose one that matches your risk appetite. When looking for the ideal hedge fund to invest in, always go for those whose managers share the same investment beliefs as yours.
Cryptocurrency is virtual currency backed by blockchain technology. It’s a new and emerging alternative investment option that can provide sizable returns in some cases.
The main challenge with cryptocurrency investment is the volatility of prices, which is always high. Additionally, more cryptocurrency options continue to enter the digital currency market, so it’s impossible to determine which will be widely adopted. The industry is also nascent, and this contributes to the high-security risks.
5. Equity Crowdfunding
If having your own business may not be your cup of tea, you could invest in someone else’s. With crowdfunding, startups that need money to expand can offer shares of their company on crowdfunding platforms.
Examples of websites offering crowdfunding services include AngelList, SeedInvest, and CircleUp, to name but a few. When you invest in a company’s shares using these platforms, you become a partial owner of that company and earn returns if the company succeeds. The only risk is that if the company doesn’t succeed, you could lose all or some of your investment.
Most well-known companies have succeeded with this investment approach. Companies like Cruise Automation, which was established through crowdfunding and later sold to General Motors in 2016, brought investors a lot of profit. And you need only a few hundred dollars to invest in crowdfunding, then scale up as the company grows.
If you’ve invested in traditional options like stocks, bonds, and exchange-traded funds (ETFs), diversifying with alternative assets is an important part of building a balanced portfolio.The alternative investment vehicle you choose to work with depends on your risk appetite, investing time horizon, and the time you’re willing to dedicate. Once you’ve considered all these factors, you can select one that you find most appealing. Contact us to learn more.