6 Alternative Investments to Consider for 2022
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- Investors may want to get more creative as economic risk factors like inflation, interest rate hikes, etc., stack up.
- Because of a low correlation to traditional markets, alternative investments can help diversify your portfolio and safeguard your investments.
- Some of the best types of alternative investments include peer-to-peer lending, REITs, art and private equity.
- Carefully analyze your finances so you can pick the alternative investment with the right combination of risk and reward based on your goals.
A quick look at our recommended alternative investment partners
- Private Equity REITs: CrowdStreet
- Fractional Shares of Rental Property: Arrived Homes
- Contemporary Art: Masterworks
- Wine: Vinovest
- Peer-to-Peer Lending: Mainvest
- Pre-IPO Private Equity Securities: Linqto
While stocks and bonds are the most common ways to invest, modern investors are looking to alternative investments as a means of diversification. This is especially true as the economy grows more precarious from inflation, potential rate hikes and other emerging concerns. As those risk factors stack up, you should look to invest in other asset classes outside the traditional markets. Thanks to advancements in the investing world, accessing these different classes is now easier than ever.
Alternative investments such as cryptocurrencies, real estate, peer-to-peer lending, contemporary art and wine can help to diversify your portfolio and therefore provide some safeguards to your investments. Many types of alternative investments have a low correlation with traditional markets, making them great for diversification.
Before you invest, make sure you think about these factors:
- Goals: Are you trying to secure your retirement funds? Perhaps you want to earn more to buy a vacation home? You should clearly define your goals at the beginning of the process to help define everything that follows.
- Your personal risk tolerance: Should you aim for slow, steady growth or a riskier option with a chance for higher returns?
- The timeline for your investment: Are you hoping to access your returns in one year, 30 years or something in between?
- Investment knowledge: It’s important to know and understand what you are investing in and any associated risks.
Considering these factors will help you make an informed decision about which type of alternative investment is best for you based on the potential risks and rewards.
1. Private Equity REITs
- What it is: A Real Estate Investment Trust is a company that owns income-producing residential or commercial real estate, or both.
- Why you need it: REITs historically have been considered good investments due to steady dividend income and long-term appreciation on the value of the real estate.
- Our recommended partner: Crowdstreet
Why it stands out: CrowdStreet offers investors access to growth-focused private commercial real estate projects with average holding periods of 5-7 years.
- Free sign-up for those who qualify
- A variety of deals to choose from, including multifamily, self-storage and data centers
- Sponsors who bring commercial deals to CrowdStreet’s marketplace are carefully vetted
- Average internal rate of return of 18.5%
- Serves only accredited investors, which eliminates those who don’t have a certain level of income or wealth
- High minimum investment of $25,000
What to know: CrowdStreet allows you to choose how you want to invest. You can invest in a diversified fund, directly in an individual deal or build a portfolio of your own.
2. Fractional Shares of Rental Property
- What it is: Purchasing fractional shares of rental property allows you to invest in rental real estate without owning it outright or becoming a full-blown landlord.
- Why you need it: You can spread risk across multiple properties for much less than the cost of purchasing entire homes, there’s no work involved and you get passive quarterly dividend payments.
- Our recommended partner: Arrived Homes
Why it stands out: There are very few restrictions if you want to invest with Arrived. The platform is open to all U.S. citizens or residents above the age of 18, and you don’t need to be an accredited investor to participate. In fact, you can start investing with as little as $100.
- Low minimum investment
- Steady returns that historically average 3.2%-7.2% a year
- Passive income with no operational responsibility
- Minimum hold period of 5-7 years
- Small selection of available properties
What to know: The platform is best for long-term investors who prefer steady returns over big gains. You’ll have to make a commitment of at least five years, and your return might be lower than with stocks or other investment vehicles.
3. Contemporary Art
- What it is: The ability to purchase shares of iconic pieces of art allows investors to enter the art market at a much lower price point than ever before.
- Why you need it: One of the main benefits of investing in art is that it isn’t correlated with other types of investments. For example, the art market isn’t affected by a stock market crash because it has its own supply and demand.
- Our recommended partner: Masterworks
Why it stands out: Masterworks is the first investment platform dedicated to art investing. It allows everyday investors to own shares of iconic works of art by the likes of Pablo Picasso, Banksy, Andy Warhol and more.
- Gives you access to contemporary art , which appreciated by 14.1% annually on average from 1995-2021
- Option to hold your investment or sell shares on secondary market
- Selling shares depends on buyers in secondary market
- Typically a longer term holding period (3 -10 years)
What to know: All artwork available on the Masterworks platform has been expertly vetted and curated by its industry-leading research team, so a lot of the legwork that comes along with traditional art investing is done for you.
- What it is: Buying wine can provide an excellent source of diversification, as long as you have the knowledge or rely on experts to select the right bottles.
- Why you need it: Collectables like fine wine generally deliver steady returns instead of the boom and bust cycles of stocks and bonds.
- Our recommended partner: Vinovest
Why it stands out: Vinovest offers a chance for wine lovers to invest in their favorite liquid asset. The company’s platform allows investors to buy bottles based on individual profiles and risk tolerances.
- Low minimum investment
- Proprietary algorithms designed to maximize returns
- Master Sommeliers advise on the best wines to choose
- Buying power that helps lower prices for individual bottles
- Management fees charged for storage
- 3% early liquidation penalty assessed for withdrawing funds within three years of the initial purchase
- Can take a long time to see a return
What to know: According to Vinovest, only 1% of the wine sold at grocery stores is investment-grade because most wines don’t have a built-to-age structure.
5. Peer-To-Peer Lending
- What it is: Peer-to-peer lending allows you to loan money directly to individuals or businesses, typically through an online platform.
- Why you need it: Investing in peer-to-peer loans gives you access to higher returns than what is available with certain other investments, such as CDs and savings accounts. You can choose which loan you’d like to make based on the level of risk associated with each loan and borrower profile.
- Our recommended partner: Mainvest
Why it stands out: Mainvest removes the barriers that have long kept average people from directly investing in startups and small businesses.
- No investor fees and a low $100 minimum
- Open to non-accredited investors
- Businesses are pre-vetted
- The IRR formula muddles earnings analysis
- Your money is tied up for years
- Illiquid — there is no secondary market
What to know: Mainvest was built for investors who are willing to take big risks in pursuit of big gains — but there’s more to the lure than just ROI. In a year that has so far been brutal to stock investors, Mainvest offers the average investor a unique kind of portfolio diversity — not to mention a good hedge against inflation — and a chance to buy into businesses that aren’t worth billions.
6. Pre-IPO Private Equity Securities
- What it is: Pre-IPO Private Equity Securities allow you to own shares of startups without joining an investment or venture capital firm.
- Why you need it: If you’re willing to take on more risk tolerance, the possible rewards of investing in companies at this stage are much higher.
- Our recommended partner: Linqto
Why it stands out: Linqto aims to make it as easy as possible for wealthy investors to buy shares of private startups that could be future unicorns. The company’s platform lets users invest for as little as $10,000.
- Minimum investment of $10,000 is much lower than what you’ll find at many investment firms
- No added fees or hidden costs
- Comprehensive information on listed companies, including valuations, risks and financial data
- Must be an accredited investor to create an account
- Limited number of companies to invest in
What to know: In addition to investing as an individual, you also have the option of investing as an LLC, trust or other entity at Linqto.