Investing is more than stocks, bonds, and mutual funds. While beginning with these more conventional investments is great, there are so many more options to pick from!
If you’re still learning how to start investing, this article will open your eyes to new ideas. Some you may have heard of while others might be brand new. Either way, we’ll keep things simple and easy to understand.
While it’s true getting started won’t be difficult, this list contains detailed information about different types of alternative investments you may want to consider. We’ll also talk about certain companies that make it easy for an individual to cash in on these opportunities.
Some of these investments may lead to great sources of passive income while others may require a little more work to keep the money rolling in. If you’re ready to expand beyond your traditional mix, diversifying with alternative investments might be what you’re looking for.
To help you sort through all the choices, here are a few alternative investments to tap into.
Editor’s note: As always, it’s important to complete your due diligence before making any investment decisions. Remember, we are not investment professionals nor are we providing investment advice for your personal situation.
Table of Contents
- Our Top Picks
- What is an Alternative Investment?
- Best Alternative Investment Ideas
- Are Alternative Investments Smart?
Our Top Picks
Fundrise [Editor’s Choice] – At Fundrise, you can start investing in real estate with just $500! In fact, we’ve invested in it ourselves. There are no down payments or landlord hassles to worry about, so it could be a great source of passive income to add to your portfolio. Get started here | Read our review
Lending Club – Lending Club is a peer-to-peer lending option that could net you some positive returns. Essentially, you’ll screen and make loans to other individuals, getting paid interest for your efforts. You can take those returns as income or store them in an IRA if you wish. The minimum opening deposit is just $1,000, and you can invest as little as $25 per loan. Learn more here
What is an Alternative Investment?
To put it simply, just about anything other than traditional stocks, bonds, and mutual funds/ETFs is an alternative investment.
When you think outside the box, getting into private equity, real estate, peer-to-peer lending, and even investing in art become possibilities.
Before you buy into it, make sure you have an understanding of where your money is going and how it might be used. When your returns are climbing, it might not be a problem. But there’s nothing worse than parting with your hard-earned cash without knowing why it’s going down in value.
Alternative investments aren’t meant to replace your current portfolio mix. Most investors use them to complement their customary stocks, bonds, ETFs, and mutual funds.
Electing to add some investment alternatives can help build your wealth and balance risk by diversifying your portfolio.
Best Alternative Investment Ideas
So, what are the best alternative investments? Here’s a list of some of our favorites!
1) Investing in Real Estate and Rentals
Though it might sound like a more traditional choice, real estate is anything but. The question is whether or not you want to become a landlord. If it doesn’t sound too bad, buying a house or duplex can be a good alternative investment to generate income.
To get started, you’ll need to find a decent price on a property and save up at least enough for a down payment. The bank will finance the rest, and the money you make on rent payments should pay the mortgage, interest, taxes, and repairs.
Over time, the property value can increase, and you stand to make a respectable return on your investment.
It isn’t all sunshine and roses, though. Being a landlord can be tough! Things break, accidents happen, and tenants can get behind on rent. To alleviate stress, you could consider hiring a property manager. Make sure it’s worth your money, though. You’ll need to pay this person for their work, and it will eat into your profits.
But sometimes paying someone else to do the dirty work is worth the money to get the job done. After all, having peace of mind is priceless.
2) The No-Landlord Approach to Real Estate
If being a landlord isn’t your cup of tea, it’s still possible to invest in real estate. Using crowdfunding, you can reap the rewards of real estate ownership without the responsibility.
There are generally two types of crowdfunded real estate to consider. The first puts your investment into properties while the second option means you’re investing in debt. Both can help you establish residual income streams, which is always a good thing when it comes to building long-term wealth.
After creating your account, scroll through available properties and pick one to put your money into. Essentially, you’ll be able to invest in property without the costs or hassle of becoming a landlord.
On the other hand, investing in real estate debt through a company like PeerStreet works similarly. However, instead of investing in physical property, you’ll be joining a group of investors to provide real estate loans. Of course, the idea is to earn extra income through the interest on those loans.
Personally, we think Fundrise is the best option here. While most crowdfunded real estate sites require you to be an accredited investor ($200K annual income or $1M net worth), Fundrise helps regular people start investing in real estate. In fact, you only need $500 to get started!
3) Peer-to-Peer Lending
Also known as P2P, peer-to-peer lending allows one person to borrow money from another person. It bypasses the bank and directly connects borrowers with investors. Because managing all that on your own would be a burden, use an online platform like Lending Club to make it easy.
Lending Club lays out the terms and conditions of each type of loan. When someone wants to borrow money, they can pick from a personal, auto, or small business loan. Investors add money to the platform to provide the funds for the loans they’re asking for.
When the borrower pays you back, they also pay interest. And that’s where you can make money. Collecting interest payments from the funds you loan can get you a pretty good return on your cash.
As an investor, you have control over how your money is used. Since you’re assuming the risk of lending money to the applicant, it’s important to review their profile before making a decision. That way, you’ll have insight into why they want to borrow money and what their creditworthiness is.
You don’t need to fund a loan on your own completely. That’s the beauty of crowdfunding. You can put as little as $25 toward each note, which can help spread your risk and diversify your funds. It can also balance your crowdfunding investing strategy.
4) Crowdfunded Art
We’ve already talked about crowdfunded real estate, but have you heard of crowdfunded art? Yes, it really is a thing. And if you play your cards right, it can add up to huge prices.
Masterworks is a platform that brings people together to invest in art. They have a team of art experts who scour the market to get the best deals on paintings and fine art. The goal is to buy them below market value so investors can make the most money.
Once they buy a piece, Masterworks sells shares in the painting to investors. That makes it possible for you to have part ownership in some valuable artwork. The pieces are always available for sale if the price is right. And when it sells, everyone is paid according to their fractional ownership of shares in the piece.
5) Music Royalties
Do you have a love for music? Making money from music royalties is a legit alternative investment.
When you write a song, you own the rights to it. If it later becomes a hit, you earn money if it’s bought, played on Spotify, or used in a commercial. The money you make is known as a “royalty” and could produce a decent stream of income for you.
But you don’t have to be the one to write the music. A company called Royalty Exchange makes it possible for you to buy and sell royalties from other artists.
You’ll have part ownership of the intellectual property rights of the music. These types of transactions used to be private. But Royalty Exchange opens up the opportunity to a broader audience.
This is truly passive income. However, it’s typically for high net worth individuals, so it might not be a good first option for a beginner investor.
Cryptocurrency is one of the newest alternative investment on the scene. Surely, you’ve heard of Bitcoin by now. It was introduced in 2009 and quickly gained traction. The value of Bitcoin hit its peak in 2017 at a record high of more than $19,000.
Since then, several varieties of cryptocurrency have become available. A few of the more popular names are Litecoin, Ethereum, and Bitcoin Cash. Each one allows you to make money through investing.
But cryptocurrency doesn’t use the same exchanges that stocks do. Instead, you buy and sell this digital money in an online marketplace. Though it’s called an exchange, it’s specific to cryptocurrency. CoinBase is the go-to exchange for beginners looking to buy digital currency.
You might think it’s completely useless. After all, the world runs on dollar bills, right?
Investing in cryptocurrency lets you take advantage of its incredible liquidity. If ever you grow tired of Bitcoin, using it to buy blankets, book a flight, or order pizza isn’t unheard of. Overstock.com, Cheapair, and Dominos all accept it as a form of payment.
7) Buy Gold
If you want to diversify your portfolio with alternative investments, gold can be a good choice. In fact, people have been buying it for more than 6,000 years.
Investors often see gold as a liquid asset and one that retains its value over the long term. For this reason, it can help to hedge against the effects of inflation.
You have a few possibilities for buying gold. Buying and holding it in the form of coins or bars is excellent for beginners. It’s also good if you have only a small amount of money.
You could also get in on exchange-traded funds, open a gold account, or invest directly through gold mining stocks or options.
Some people prefer to have physical possession of their gold holdings. Having your coins or bars delivered to you is possible, though you’ll want to make sure you have a secure storage location and enough insurance to cover theft or loss.
8) Commodity ETFs
Exchange-traded funds (ETFs) are one of the most traditional alternative investments in this list. When you’re talking about commodities, they haven’t always been accessible to individual investors. But in the last 20 years, ETFs took an interest in commodities. And that makes it easy to buy and sell through a regular exchange.
Possible commodities in an ETF are gold, silver, oil, corn, natural gas, and solar energy. To buy, you place an ETF order just like you would if you were buying stock.
Like buying gold directly, buying a stake in a commodity ETF can help to protect against risk and reduce the effects of inflation. Because it doesn’t change in value the same way stocks and bonds do, it can balance your overall investing plan.
9) Start Your Own Business
Investing in yourself is often the best strategy. If you’ve always wanted to start your own business, considering it an alternative investment might be the push you need to get your idea off the ground. With you in control of your business decisions, the potential for growth is unlimited.
Starting a business can lead to some of the highest returns of them all. Keep in mind it’s also one of the highest risks you’ll face, but you’ll never know if you don’t try. And who knows? If it works out, it could be the most significant risk you’ve taken with the highest return imaginable.
Some businesses have a low startup or ongoing costs, such as freelance writing, starting a blog, becoming a virtual assistant, or providing consulting services. And you have the choice to start it on the side part-time so you don’t have to give up the security of a regular job.
10) Invest in Someone Else’s Business
To get the benefits of owning a business without the headache or time investment, you may want to consider equity crowdfunding.
Like other crowdfunded investments, you buy partial shares of ownership. Except this time, you’re buying into someone’s business. When you do, you own part of the company and can profit if the company does well; you also risk losing money if the company fails.
Investing in someone’s business is an excellent way to help a business acquire the capital they need for cash flow. But it does restrict your liquidity. With your money tied up in someone else’s business, you don’t have the option to cash it out on a whim.
Are Alternative Investments Smart?
Hopefully, this list helps spur ideas for investing when you venture outside of stocks and bonds.
Remember that all investments come with risk, and some are more uncertain than others. Before jumping in, make note of your risk tolerance. If you want to lower the chance of losing your funds, stick with investments with lower risk.
As always, never invest more than you’re willing to lose. There’s no guarantee in life, and you should always have a financial safety net to fall back on.
Do you have alternative investments? Tell us about them in the comments below!