May 13, 2024

High Yield Alternative Investments

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Stocks and funds are the typical choices for investment, but are there other high-yield alternatives? Read on to find out.

What are the best high-yield alternative investments?
Here are the 10 best alternative investments with high returns:
  1. Real Estate
  2. Private Equity
  3. Precious Metals
  4. Commodities
  5. Art
  6. Lending
  7. Private Mortgages
  8. Farmland
  9. Crowdfunding
  10. Non-Fungible Tokens

High-yield alternative investments are a good addition to your portfolio. They can offset your portfolio losses in times of economic downturn.

In this guide, learn some of the best high-yield alternative investments, including the platforms you can use to access them.

10 Best High-Yield Alternative Investments

The high-yield alternative investments below are accessible to all types of investors. You don't need a great amount of capital to be able to invest in most of these.

Which high-yield alternative investment class interests you the most?

Real Estate

Real estate is one of the most popular high-yield alternative investments. This is an ideal investment because the value of real estate normally appreciates over time.

According to the Federal Housing Finance Agency, the annual average home price increase since 2000 has been 4.7%, and since 2012, the average rate has been 7.7%.[1]

You can invest in residential property, commercial property, land, or private and public REITs.

The only downside is that most real estate properties have prices that can be too high to invest in. Good thing, there are real estate investing platforms such as Fundrise and YieldStreet.

These platforms allow you to invest in real estate assets whenever and wherever you are. You don't need a huge down payment and you also don't need to manage the property.

Private Equity

Investing in private equity means buying shares of private companies or companies that are not publicly traded.

This may involve buying private stocks of a mature business or providing the first financial investments to a startup. The latter is called angel investing.

With this, your investment is not affected by fluctuations in the stock market. It is only dependent on the performance of the company you invested in. However, this investment is less liquid compared to investing in public companies.

Yieldstreet and StartEngine (formerly SeedInvest) are some platforms offering access to private equity investments.

Precious Metals

Precious metals such as gold hold their value well when inflation is high. It also acts as a hedge during periods of economic uncertainty. Precious metals include gold, silver, platinum, etc.

If you want to invest in precious metals, you can do so by investing in ETFs or bullions. Bullions are normally stored in bars.

If you want to test this out, you can start with buying silver, as this is cheaper than gold.

Platforms that offer physical precious metal products include JM Bullion and SD Bullion.

Commodities

Commodities normally include crops, oil, and precious metals. Investing in commodities doesn't necessarily mean you'll buy the physical asset and store it in your house. Commodities investors normally invest digitally.

Investing in commodities is not for the short-term investor as commodity prices tend to be volatile in the short term. However, commodities serve as good inflation hedges in the long term.

There are platforms where you can buy or sell commodities at set prices. In doing this, you take part in ensuring that the supply meets the demand. You can either buy mutual funds or ETFs.

Browse through platforms like IBKR Mutual Fund Marketplace if you want to invest in commodity-focused funds.

Art

Art is another ideal high-yield alternative investment because its intrinsic value also appreciates over time.

But since this is a tangible asset, you will have to prepare for the associated cost of storing and preserving the artwork.

If you don't feel like storing art pieces, investing in art platforms such as Masterworks may interest you. Masterworks allows you to own a part of famous art pieces through fractional ownership.

Lending

Lending is a popular alternative investment that can come in various forms. One of the most common is peer-to-peer (P2P) lending. With P2P lending, you get to lend money to borrowers through online lending platforms such as Upstart.

You then earn interest from the loans you've chosen to invest in. You can filter loans based on the borrower's credit score or the purpose of the loan.

Private Mortgages

Investing in private mortgages offers a unique avenue for real estate investment without directly acquiring a property. In this scenario, you assume the role of a lender, extending funds to homeowners.

Your investment represents the mortgage's debt amount, and you earn profits through interest payments. The property itself acts as collateral, providing security in case the homeowner stops making payments. When this happens, you can assume ownership of the property.

Paperstac serves as a convenient online marketplace, connecting individual investors and facilitating the trading of mortgage notes. You can explore listings from various locations across the United States to discover potential investment opportunities.

Farmland

Diving into a farmland investment is like a specialized branch within the broader realm of real estate. The returns from farmland investments have consistently risen since 1990, with an almost 20x growth for those who invested back then.[2]

Beyond financial gains, investing in farmland means actively supporting crop production and sustainable agriculture. Notably, billionaire investors are drawn to farmland due to its relatively untapped potential.

You can explore opportunities in farmland investment through online platforms like AcreTrader and FarmTogether. These platforms can connect you with diverse farmland properties across the United States.

Crowdfunding

Crowdfunding is a dynamic way for a community of backers to come together and fuel a range of ventures. It spans diverse assets like corporate debt, consumer debt, real estate, and private stocks.

It's not just a funding avenue for entrepreneurs and startups. Artists and musicians also turn to crowdfunding to secure financial support for their creative projects.

With crowdfunding platforms, you get a gateway to investing in various ventures collectively funded by the platform.

Non-Fungible Tokens

Non-Fungible Tokens, or NFTs, are like digital treasures that prove you own something special in the online world. This is all thanks to blockchain technology.

Unlike regular cryptocurrencies such as Bitcoin or Ethereum, which are like interchangeable coins, each NFT is one of a kind. It's like having a unique piece of artwork - no copies allowed.

You can invest in NFTs through NFT marketplaces such as Mintable, OpenSea, and Rarible. When buying NFTs, you should check out who's behind the creation and how unique it is.

What Is an Alternative Investment?

An alternative investment is any asset class outside of cash, publicly traded stocks, or bonds. ETFs and mutual funds also consist of publicly traded stocks and bonds, so they are not considered alternative investments. They are actually mainstream investments.

Most investors buy alternative assets for diversification, while others do so out of sheer interest in the sector. Alternative investments are attractive because they provide non-correlated returns that can complement your mainstream assets.

Just a heads-up though - some alternative investments have limited liquidity. That means you cannot convert it to cash as quickly as you can with stocks or funds.

What is your main goal for considering high-yield alternative investments?

Pros and Cons of Alternative Investments

Here are some of the advantages and disadvantages of diving into alternative investments:

Pros:

  • Offers diversification benefits
  • Can offer protection against inflation
  • Helps reduce portfolio volatility
  • Low correlation to stock market performance

Cons:

  • Limited accessibility
  • Has higher risks than mainstream investments
  • Has higher fees or transaction costs
  • Some are not easily convertible to cash

What's your biggest concern with high-yield alternative investments?

How Do Alternative Investments Fit Into a Portfolio?

Deciding how much of your portfolio should be in alternative investments really depends on your financial goals, risk tolerance, and how long you plan to invest. Some experts throw around this 40/30/30 idea - 40% in stocks, 30% in bonds, and another 30% in alternative investments.[3]

If you're all about long-term investing and can handle some risk, then investing in private equity, art, or lending can take a larger percentage of your asset allocation.

The allocation is also subject to your preferences and needs. So if you prefer assets with high liquidity (those that can be easily sold on short notice), then you can allocate more for commodities.

Regulation of Alternative Investments

Even though the SEC keeps an eye on alternative investment vehicles, here's the kicker - their securities don't have to go through the whole registration process. It's like they get a bit of a shortcut in the regulatory journey.

The rules for alternative investments are a bit fuzzier compared to the clear guidelines for mainstream securities. That's why investors really need to dig deep and do their homework when considering alternative investments.

Bottom Line

In the realm of investing, the important factor for minimizing risk and maximizing returns is diversification. Embracing alternative investments offers distinct chances to broaden your portfolios and potentially achieve lucrative returns.

Real estate, private equity, precious metals, commodities, and art are some of the best high-yield alternative investments. Don't forget, though, that these assets also come with risks, such as illiquidity and fluctuations in value.

Make sure you have done your research before investing in any asset.

References

  1. ^ Federal Housing Finance Agency. FHFA House Price Index (HPI) Monthly Report, Retrieved 03/15/2024
  2. ^ AcreTrader. U.S. Farmland Returns, Retrieved 03/14/2024
  3. ^ Wealth Management. The Case for the 40/30/30 Portfolio, Retrieved 01/08/2024

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