Often, when people talk about investing, they mention stocks, bonds, or perhaps mutual funds. But, have you ever stopped to ponder, What are the most popular alternative investments?
Beyond the stock market and the bond universe, there exists a whole realm of unique, exciting, and hopefully profitable investment opportunities.
What are the Most Popular Alternative Investments?
Alternative investments represent non-traditional assets that aren't typically part of a standard investment portfolio. They are diverse, ranging from real estate and precious metals to exotic options like collectibles or cryptocurrencies. The world is your oyster when it comes to alternative investments. So, let's take a closer look at some of the most popular alternative investments today.
1. Real Estate: A Tangible Asset with Endless Possibilities
The real estate market has always been a popular choice for investors seeking alternative asset class options. It offers tangible, often appreciating assets that can provide both cash flow through rental income and potential capital gains.
The Allure of Real Estate Investment
Real estate's primary attraction lies in its tangibility. Unlike stocks or bonds, real estate is a physical asset. You can touch it, see it, and make changes to it. This factor alone makes real estate a popular choice for those who like the security and control that comes with owning physical property.
Additionally, real estate investments can offer diverse options such as residential properties, commercial spaces, rental properties, and real estate investment trusts (REITs). Each comes with its own unique set of opportunities and risks.
For example, in 2021 (when the last data was available), here's how each sector performed:
- Self-Storage: 57.6%
- Residential: 45.8%
- Industrial: 45.4%
- Retail: 41.9%
- Diversified: 20.5%
- Infrastructure: 18.6%
- Timber: 16.45
- Mortgage: 14.7%
- Office: 13.4%
- Healthcare: 7.7%
- Lodging: 6.3%
One of the more popular areas to invest in real estate right now is farmland. You can use a company like Acretrader to get started with farmland today.
2. Gold and Other Precious Metals: The Everlasting Store of Value
Precious metals like gold, silver, and platinum have been used as a store of value for thousands of years. In times of economic uncertainty or inflation, they can act as a hedge, maintaining their value while paper money depreciates.
Why Invest in Precious Metals?
Investing in precious metals is relatively straightforward. One can buy physical gold, silver, or platinum in the form of bars or coins. Alternatively, there are exchange-traded funds (ETFs) and mutual funds that track the price of these precious metals.
However, precious metals typically under-perform other asset classes. Here some historical performance for the last 100 years:
- Gold: 4.5%
- Silver: 4%
Compared to the stock market, which has returned almost 10% on average, these underperform. However, others view them as more stable because they're tangible.
3. Cryptocurrencies: The New-Age Digital Asset
Introduced in 2009 with the launch of Bitcoin, cryptocurrencies have quickly grown to become a popular alternative investment. Their value comes from the innovative blockchain technology that powers them, offering a decentralized, secure, and potentially lucrative investment option.
The Wild West of Cryptocurrencies
The allure of cryptocurrencies lies in their potential for high returns. However, this comes with significant volatility and risk. Despite this, many investors are drawn to the promise of getting in on the 'ground floor' of a potential technological revolution.
4. Private Equity: Investing in Potential
Private equity represents an exciting alternative investment that involves investing directly into companies, rather than buying shares in the public market. This investment method typically involves significant capital and a long-term commitment but offers the potential for substantial returns.
Unlocking Value with Private Equity
Private equity is a unique investment because it gives investors a chance to participate in a company's growth story from the inside. Instead of being a passive shareholder, private equity investors often have a say in how the company is managed and grown.
It's important to note, however, that private equity investments are typically illiquid and require a higher capital commitment than traditional investments. These factors make it a more suitable option for investors with a long-term perspective and higher risk tolerance.
With that in mind, early-stage investing has some of the highest returns possible.
5. Collectibles: Mixing Passion with Investment
Collectibles refer to items that are rare or highly desired, which can appreciate over time due to their rarity or demand. This can include everything from classic cars and vintage watches to fine wines, rare coins, or even comic books.
The Attraction of Collectibles
Investing in collectibles can be a fun and rewarding experience. For one, it allows investors to combine their passion and their investment strategy. If you're a car enthusiast, for example, investing in classic cars allows you to enjoy your assets in a way that isn't possible with stocks or bonds.
However, investing in collectibles isn't without its risks. The market can be volatile, and values can fluctuate based on trends and popularity. Additionally, there are costs associated with storage and maintenance that investors must consider.
Wrapping Up: Broadening Your Investment Horizon With Alternative Investments
So, when you ask, "What are the most popular alternative investments?", you now have a wider perspective. Real estate, precious metals, cryptocurrencies, private equity, and collectibles represent just a few of the diverse and potentially profitable options available to savvy investors.
Remember, though, that while these investments offer the potential for high returns, they also come with their own unique sets of risks and challenges. As always, it's crucial to do your research, understand what you're investing in, and if possible, consult with a financial advisor.