Most people think of investing as buying stocks, bonds, mutual funds, or exchange-traded funds (ETFs). The more adventurous might think about a real estate investment trust (REIT). Some people also might consider buying stocks of mining companies or investing in a metals ETF as a way to invest in gold, silver, platinum, and other metals.
But what if you want to avoid anything that trades through a broker or online discount broker? That’s where alternative investment opportunities come in. Some of them can make you a lot of money, and some of them may make you a more modest profit. Either way, you’re not trapped into choosing stocks, bonds, mutual funds, and ETFs that are traded publicly.
When you start thinking about alternative places to put your money, you must avoid scams and get-rich-quick schemes. Instead, focus on legitimate investment vehicles that may help you prosper. Here, we’ve selected five types of legitimate alternative investments to consider in 2022.
1. Peer-to-Peer Lending
Peer-to-peer lending, also known as P2P lending, is a relatively new phenomenon. Online P2P services offer loans for businesses, personal use, or anything else you can imagine. If you join the pool of investors who are willing to loan money to others, then a part of the loan can be funded by you once the borrower qualifies.
There are many P2P lending companies to choose from, including LendingClub.
Your money is typically pooled with other investors’ money, and together you make a loan to the individual asking for funds. Often, the returns you get from P2P lending can be higher than those you’d get from standard savings vehicles.
With P2P lending, there is no market risk. However, by investing in P2P lending, you is lending borrowers; hence, there’s some risk of defaults. Many P2P lending platforms ensure on-boarding of borrowers whose creditworthiness has been established on a par with a bank; this mitigates defaults. With some P2P plans, you can decide the credit rating and other parameters you’ll consider for a borrower, and you have the choice to fund or not to fund.
2. Real Estate
When investing in real estate, you can buy and own property. You buy a house, duplex, or multi-family dwelling, like an apartment complex, have tenants live there, and collect rent. In many cases, you make a down payment, and the bank finances the rest. You get the rental income and appreciation from the property.
Before you consider buying property, ask yourself if you have what it takes to be a landlord. It can come with a lot of headaches: Things break, accidents happen, and people fall behind on rent. If you want to get the financial benefits of property ownership without all of the responsibility that comes with being a landlord, then you have a few other options.
You can hire a property management company to handle the many responsibilities that come with property ownership, including dealing with tenants, collecting rent, making repairs, and more. That will cost money, of course, but it could be worth it to you in the long run.
You can also form a partnership with like-minded investors to purchase and manage a property together. This can help you spread some of the risks and you may find people who are more knowledgeable than you when it comes to real estate and property management.
Another option is to use an online investment platform that focuses on real estate. Companies like PeerStreet and Fundrise allow you to invest in residential property without having to deal with the responsibilities of being a landlord. However, these types of investments come with some fees and risks that you’ll want to research before diving in.
Gold is widely regarded as a tangible inflation hedge, a liquid asset, and a long-term store of value. As a result, it is often a sought-after asset class and can be a strong competitor to stocks.
Gold is regarded as a great diversifier because of its low correlation with other asset classes, especially stocks. This becomes more pronounced in tougher times when gold can act as a rescue asset.
There are various routes for investors to get exposure to gold, like buying and holding physical gold such as coins or bars, gold exchange-traded funds (ETFs), gold accounts, or investing indirectly through gold mining stocks or futures and options.
However, if you’re a small investor, it’s wise to opt for direct methods of investing in gold. This usually includes buying gold bullion—coins, bars, or other physical forms of gold. An allocation of 5% to 10% in gold is considered healthy for an individual’s portfolio. Also, it’s vital to learn about the factors that govern gold prices when it comes to investing in gold.
4. Owning Your Own Business
You can use your money to invest in your own business, which has the potential to produce the highest returns of all your investment choices. It can also fail and cost you a lot of money. However, your businesses can produce a steady income and grow over time.
Some businesses have very low startup and ongoing costs. These include virtual or online businesses, like teaching, consulting, coaching, and IT support.
One way to approach this is to only put part of your money into a business and invest the rest elsewhere. This approach can save you some sleepless nights.
Another approach is to create a part-time business, something you can do in the evenings and weekends. That way you don’t have to give up the security of your regular job, and you will be making extra money.
5. Equity Crowdfunding
If you don’t want to own your own business, you may want to consider owning part of someone else’s. Startup companies that need money can offer shares of their companies on equity crowdfunding websites. These sites include AngelList, CircleUp, SeedInvest, and Wefunder, and more.
If you invest in a company over an equity crowdfunding site, you own part of it and will be rewarded if the company succeeds. The risk is that if the company fails, you lose part or all your money.
There have been some equity-funding success stories, such as Cruise. This company develops self-driving vehicle technology and was largely developed through equity crowdfunding. General Motors bought the company in 2016, creating profits for investors and giving an air of legitimacy to the crowdfunding industry.
You can start investing your money in equity crowdfunding with just a few hundred dollars.
Your investment portfolio should be diversified. This means you should consider a variety of stocks, but it also means you can invest in non-stock investment vehicles. Consider where your money would grow best based on your tolerance for risk. Remember: the higher the risk, the greater the potential rewards.
All these asset further comes under these 2 classifications:
When returns depend on the performance of the underlying asset, which could be equity or debt, it is the case of market-linked investment. Returns, therefore, are neither fixed nor . Equity shares, mutual funds, Ulips, NPS are all examples of market-linked investments. As they are high-risk products, the potential to generate high returns is also there.
Non market-Linked assets:
A lot of alternative investments class assets come under this category, such as peer to peer lending. Where the returns may not be determined on the market volatility and isn’t also a fixed return asset. These are great options to diversify the portfolio with high earning potential assets with low risk rate.
Interest-bearing investments such as bank fixed deposits, company deposits, post office small savings products and bonds are popular among fixed-income investors. They come with a fixed return and a pre-decided maturity period. They, therefore, belong to the debt-asset class. According to Vivek Karwa, Certified Financial Planner, Investment Adviser & Portfolio Manager, “You should be investing in these only when the requirement is fixed and in the near future since you need a sure shot cash flow and can’t risk any volatility.”
Fixed assets can have a hard time competing against stocks or market-linked assets as the potential returns are way higher. Whereas non market-linked assets have potential of earning just as high returns as stock market assets while maintaining lower risk rate, albeit with lower probability.
An example of that will be LenDenClub’s FMPP®
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Which brings us to..
Drawback of stock market
- Risk of market volatility:
You could lose your entire investment. If a company does poorly, investors will sell, sending the stock price plummeting. When you sell, you will lose your initial investment. If you can’t afford to lose your initial investment, then you should buy bonds.
2. Common stockholders paid last:
Preferred stockholders and bondholders or creditors get paid first if a company goes broke. But that happens only if a company goes bankrupt. A well-diversified portfolio should keep you safe if any company goes under.
Time: If you are buying stocks on your own, you must research each company to determine how profitable you think it will be before you buy its stock. You must learn how to read financial statements and annual reports and follow your company’s developments in the news. You also have to monitor the stock market itself, as even the best company’s price will fall in a market correction, a market crash, or bear market.
- Taxes: If you sell your stock for a loss, you may be able to get a tax break. However, if you sell your stock for a profit, you’d be liable to to pay capital gains taxes.
- Emotional roller coaster: Stock prices rise and fall second by second. Individuals tend to buy high out of greed, and sell low out of fear. The best thing to do is not constantly look at the price fluctuations of stocks, and just check in on a regular basis.
- Professional competition: Institutional investors and professional traders have more time and knowledge to invest. They also have sophisticated trading tools, financial models, and computer systems at their disposal. so?
Although there are several advantages of share market investment, investors must be cautious while making investment decisions. Understanding the basics of the stock market and doing proper research before investing is advisable to mitigate risks and maximize ?