Savvy investors know the benefits of diversifying their portfolio with alternative investments. Because these investments operate outside of the traditional stock market, they provide a unique hedge against inflation.
There’s a wide variety of alternative investments out there, from the exotic to the downright boring (hello, structured settlements). To help you diversify your portfolio, let’s check out the best alternative investments, how they work, and the pros and cons.
First, Exactly What Are Alternative Investments?
Alternative investments are financial assets that do not fit into conventional investment categories, like publicly traded investments in stocks, bonds, or cash. Alternative investments are assets outside of the traditional financial market.
Theoretically, alternative investments have a lower correlation with the stock market, which is why so many investors turn to them during periods of volatility. If you click on that link, the types of investments they’re talking about are hedge funds, private equity, commodities (think: real estate and minerals), and structured products.
One way to understand alternative investments is to look at how economists characterize them:
- Less regulation
- Varying liquidity, but it’s typically lower than traditional investments
- High returns
- Low correlation with stock market
- High minimum investment
- Difficult to determine the underlying value
- Higher fees
Traditionally, alternative investments (think hedge funds and private equity) have only been accessible to accredited investors, but that’s not the case anymore.
There are more types of alternative investments than ever before… don’t worry, we’re about to get into your options… but many don’t require accreditation.
Real estate is more accessible than ever before, but there are also sneakers, toys from the eighties, wine, and so on. These have become real ways to invest and see serious returns.
Now that you understand what alternative investments are, let’s get to the fun stuff and start talking about the best alternative investments…
11 Excellent Alternative Investments for 2022
1. Real Estate
Real estate is historically one of the most mainstream types of alternative investments. It can include everything from buying rental properties to crowdfunded real estate. Even owning your home is an investment in real estate!
One of the reasons so many investors have turned to real estate as the U.S. sees record inflation rates is because of how it operates within the economy. In fact, in 2021, commercial real estate sales hit $809 billion, which far exceed previous years, and real estate stocks, or REITs, were up 36% in 2021.
That’s all very promising, but how do you start investing in real estate?
Because real estate is seen as such a solid investment, there are lots of ways in:
- Crowdfunded real estate: Crowdfunding is exactly what it sounds like — a pool of people investing in real estate. These are income-producing real estate projects, like retail developments and apartment complexes. There are crowdfunded real estate platforms, like Fundrise, that allow you to get started for as little as $10.
- REITs: This stands for real estate investment trusts, which were invented in 1960 as a way to provide all investors access to income producing assets, not just wealthy investors. You can purchase REITs through a brokerage.
- Farmland: Investing in farmland yields an average return of 11% according to some sources, and companies like FarmTogether are curating diverse portfolios of farmland real estate for accredited investors.
- Buying rental property: Rental properties can bring in monthly cash flow, and there’s also long-term appreciation when you eventually decide to sell.
- Flipping houses: If you’re thinking of HGTV, that’s exactly what we’re talking about, but flipping houses isn’t nearly as glamorous (or as easy).
The most accessible way to start investing in real estate is through crowdfunded real estate or REITs. Neither requires a big upfront investment, and they’re both really passive.
There are more… ehhh… unconventional ways to invest in real estate — burial plots, mobile homes, even coworking spaces. But like with any investment, do your research before you invest.
Fundrise is giving new investors $10 to invest
You can invest in commercial real estate with as little as $10 with Fundrise, and they are giving new investors an additional $10 when they get started.
Do you remember the movie "Sideways"? It was about a lonely wine lover named Miles who heads to California wine country for the weekend, and there’s a famous line that goes, “If anyone orders Merlot, I’m leaving.”
That movie sparked a 170% increase in California Pinot Noir production (the lead character’s preferred wine) and a 7% to 8% increase in total wine grape production. But more importantly, the bottle of wine Miles drinks at the end of the movie sells for approximately $5,000 (it’s a 1961 Chateau Chaval Blanc, if you’re interested).
Good wine gets better with age, and the average return is 10-15%... now you understand why it’s on our list of best alternative investments.
You no longer need to build a wine cellar in your house or worry about drinking your investments. There are a handful of companies that curate portfolios or let you invest in specific collections, like:
- VinoVest: There’s a minimum investment of $1,000, your investments are covered with full insurance, and all tiers have optional advisor access.
- Vint: Invest in wine and fine spirits for as little as $20/share. The minimum investment depends on the collection you’re investing in, and each collection is filed with the SEC.
3. Precious Metals
Gold, silver, platinum… These highly sought after precious metals are some of the most common alternative investments.
Precious metals are a unique hedge against inflation because they have no inflationary risk. See, unlike printing money, you literally cannot make more gold, silver, or any precious metal, for that matter.
There are several ways to invest in precious metals:
- Physical precious metals: Think bars, coins, and jewelry. These physical products should gain value as the cost of the underlying precious metal increases. If you’re interested, check out Vaulted. You can purchase gold bricks, or portions of them, and they’re stored in the Royal Canadian Mint.
- Online brokerage: You can invest in precious metals through ETFs, mutual funds, or futures contracts. These are precious metals-based investment products that can be found through most online investment platforms.
4. Local & Small Businesses
Want a feel-good alternative investment?
Mainvest is a platform where you can invest in small businesses, like local grocery stores, breweries, bakeries, cannabis clubs, and more. All businesses are vetted before they hit Mainvest’s platform, and the minimum investment is $100.
The qualification process for business owners is to raise at least $10,000 from 10 people they personally know. Investors are paid back through a revenue-sharing agreement with 10% to 25% target returns.
The feel-good part is that you’re helping a budding entrepreneur realize their dreams, and Mainvest has a 96% repayment rate!
In 2021, Picasso’s "Femme assise près d'une fenêtre (Marie-Thérèse)" was auctioned off at Christie’s for a whopping $103.4 million. It was sold eight years prior for $44.7 million.
While it’s obvious that fine art is one of the best alternative investments, most of us don’t have tens of millions of dollars sitting aside, and that’s what is so interesting about Masterworks.
Masterworks is similar to crowdfunded real estate, except you’re investing in “blue-chip art” that they buy, securitize with the SEC, and sell shares for as little as $20. You can sell your shares in their secondary market or wait until the painting sells.
There is a 1.5% management fee plus 20% of future profits, and the estimated length of investment is around seven years.
There was recently a story about how a 36-year-old man rediscovered a collection of Pokémon cards that he played with when he was 10, and how they’re expected to sell for over $15,000. But that’s nothing…
YouTuber Logan Paul recently purchased an ultra-rare 1998 holographic Pikachu “Illustrator” card for $5.275 million. That’s wild!
But Pokémon cards are just one on a long list of collectibles that make highly profitable alternative investments. Think:
- Comic books
- Board games
- Action figures
- Vintage lunch boxes
- Beanie Babies
- Pez dispensers
- Disney VHS tapes
You really need to understand the market before you start throwing money at someone’s Beanie Baby collection, but these are great alternative investments if you have a collection to sell.
NFTs have been all the rage for a minute. But most people are still confused about what they actually are, so here’s a quick breakdown:
- NFTs stand for non-fungible tokens.
- The non-fungible part simply means that it’s unique and can’t be replaced with something else.
- Most NFTs are part of the Ethereum blockchain.
- It’s the blockchain that keeps track of who is holding and trading NFTs.
NFTs can be digital art, video clips, music, and even your brain downloaded and turned into AI. You can see examples of them on NBA Top Shot, which sells tokenized moments in NBA history. OpenSea is another popular trading platform that sells a much broader range of NFTs.
People spend hundreds, thousands, and millions of dollars on NFTs.
Jack Dorsey, the creator of Twitter, created an NFT that tokenized the first tweet ever sent. It sold for $2.9 million dollars in 2021.
It’s been a rough year for cryptocurrency, but there are still many who believe in its potential. It’s really the epitome of alternative investments.
The hype around crypto grew because it decentralizes and disrupts the market. The idea is that it can eliminate the role of banks, there’s less devaluation (because there’s a limited amount of most coins), and the money is really yours.
However, everything you just read has been challenged in recent months as the crypto market plummeted.
Because cryptocurrency is still so new, it’s hard to tell how and when the market will rebound. While we wait to see what happens, you can read up on how to start trading: Best Places to Buy Bitcoin.
9. Venture Capital
Venture capital (or VC) is a type of private equity and financing that investors provide to startup companies and small businesses that have been identified as having long-term growth potential.
Most venture capital opportunities are only available to accredited investors, but investment banks and financial institutions can also make investments. Interestingly, the investments don’t always take a monetary form. It can be technical or managerial experience that helps the startup grow and succeed.
One of the easiest ways to get started is to reach out to any business development or startup accelerators in your area. They often have events for finding funding, mentors, and other types of support.
10. Mineral Rights
Because of the way land ownership works in the U.S., land often comes paired with the right to any mineral produced on the property beneath it. That claim is what’s called “mineral rights.”
For example, if you own land that sits on top of an oil field, and a company wants to come in and drill for oil production, you have a right to income earned off your land.
You don’t have to sell your land to profit — you can sell the rights to a company who will extract them. Additionally, you don’t need to own the land to profit. Individual investors can buy rights from property owners to reap the benefits.
There are companies who specialize in this type of alternative investment, but because this is such a competitive market, do your research before buying or selling mineral rights.
11. Structured Settlements
Does the name J.G. Wentworth ring a bell? There’s a good chance the jingle, “I have a structured settlement, and I need cash now. Call J.G Wentworth!” lives in your brain forever.
While J.G. Wentworth is a company that invests in structured settlements, you can do the same thing with workers’ compensation, wrongful death, and life insurance. Those are just a few types of structured settlements, and these alternative investments require a different level of comfort because of their nature.
The way it works is that the investor pays an individual for their structured settlement with a lump sum payment that’s less than what the individual earns over the lifetime of the settlement. The investor then starts receiving monthly settlement payments.
How much you profit depends on the difference between what you paid for the settlement and the remaining balance.
This is generally a very long-term strategy with low yields. Some structured settlements go on for decades, and you have to factor in inflation.
Pros and Cons of Alternative Investments
Like any type of investment, you need to carefully weigh the pros and cons before moving forward. So let’s dive into what those are:
Pros of Alternative Investments
Cons of Alternative Investments
How Much Should I Invest in Alternative Investments?
This is the question! There are some serious benefits to alternative investments, but that doesn’t mean you should drop your life savings into any of them. Advisors generally agree that it should be in the range of 10-20% of your overall portfolio.
However, you should carefully consider your investment goals, time frame, and overall financial situation before making any drastic moves.
The Final Word: What Are the Best Alternative Investments?
We’ve covered a lot of ground here — everything from Pokémon cards, real estate, and wrongful death settlements. There’s truly something for everyone. If you’re still unsure of where to start, here are our top recommendations:
- Crowdfunded real estate: Because Fundrise has a minimum investment of $10, it’s an affordable and accessible way to take advantage of commercial real estate.
- Fine wine: Vint is a very affordable way to start investing in wine and spirits. The minimum investments depend on the collection, but it can be as low as $20 a share.
Real estate has long been seen as one of the safest alternative investments because it has a much longer track record than options like NFTs or cryptocurrency.
They can! Higher returns aren’t guaranteed, but alternative investments have the potential to offer much higher returns than conventional investments like stocks and bonds. The downside is that there’s generally higher risk and less liquidity.
Alternative investments are a solid way to diversify your portfolio, and investors turn to them when the broader market dips because they aren’t correlated.