Today we will be covering five alternative investments that can yield strong gains for your portfolio. Besides traditional assets like stocks, bonds, and cash, investors are on a hunt for alternative investments that perform well outside of the traditional market. Finding the right alternative investment can bring appreciation and recurring income to any portfolio.
Alternative investments are financial assets that don’t fit into the conventional classes of income, equity, or cash. Some of the earliest examples of alternative investing began in the 1800s during the creation of The Transcontinental Railroad. During this time, investors like Dr. Thomas Durant and Theodore Judah competitively raised capital to buy an interest in the locomotive industry and lead the American Industrial Revolution.
However, when most people think of alternative investments they rarely think of railroads. The first examples that come to mind are cryptocurrencies or precious metals like gold and silver. While these may be applicable options, they aren’t the only alternative investments out there.
A life settlement is a financial transaction where a life insurance policy is sold for a value greater than the policy surrender value. The original policyholder sells the policy to a third party, known as the investor or buyer. The investor then becomes the new owner of the policy and is responsible for paying future premiums. In 2009, life settlements were worth an estimated $16 billion. By 2018, that number had risen to $89 billion and is expected to grow even larger in the coming years. The life settlement industry is projected to be worth $145 billion by 2025. As a result, many investors are investing in life settlements as a way to diversify their portfolios and hedge against inflation hikes. However, investors should do their due diligence when investing in life settlements because it is a highly regulated industry.
The majority of state regulations around life settlements pertain to disclosures. The purpose of these disclosures is to inform policyholders of their options. In many states, policyholders must receive all offers and counteroffers, as well as notices that life settlements may influence tax liabilities and access to government benefits.
Some states have even outlawed life settlements altogether because of the potential for abuse. As a result, regulations were included in the Consumer Financial Protection Act of 2010 to protect potential policyholders. Some of these regulations include a seven-day cooling-off period and a requirement that investors must be licensed by the state to sell life settlements.
Investing in racehorses is a luxury alternative investment that can be fun and profitable. The global horseracing industry is worth an estimated $100 billion. In the United States alone, the industry is worth $27 billion. Horse racing generates more than $17 million in annual revenue and employs over 500,000 people. One great way to invest in racehorses is through horse ownership syndication. Horse ownership syndication is when a group of people come together to purchase a horse and train it to become a professional racehorse.
The group then shares expenses regarding the training, racing, and breeding of the horse. Horse ownership syndication is now the most common way for new investors to get involved in racehorse ownership. That's because this type of alternative investment is perfect for those who want to be involved in the horse racing industry but don’t have the time or money to do it on their own.
There are however a few downsides to horse ownership syndications. Depending on the syndicate, investors have limited choices in the horses they can purchase. This is because many derbies preselect their horses before making them available for syndicates to purchase. This may or may not be positive depending on an investor's horse expertise.
Another downside to horse ownership syndicates is the limited access to managers. During the syndicate process, investors rarely have control over their horses' train selection, race targets, and competition circuit. As a result, it's important to do your research and ask plenty of questions before investing in any horse ownership syndicate.
ATM ownership can generate passive income and has a relatively low barrier to entry. The average ATM generates $30,000 in revenue per year. And with over 400,000 ATMs in the United States, there’s plenty of opportunity for growth. Another perk is that you can invest through a platform or fund that will handle any technical issues regarding your ATM. This hands-off approach can make ATM investing very appealing to investors.
However, there are some risks associated with ATM ownership. The main problem is that ATMs depreciate over time because they’re constantly being used. But, many investors use depreciation as a tax advantage allowing them to make their money back by depreciating the asset over time. Nevertheless, ATMs also need to be stocked with cash, which can be a target for thieves. Fees associated with ATM ownership can also change, which can impact your profitability.
While the risk of startup investing is high, the payoff is much greater. In just three months of 2022 over 600 unicorns in the United States raised as much as $27 billion. And that's not all, in 2020 we saw a surge in VC funding with $155 billion going into startups, which was up from 2019's $140 billion.
While investing in startups can be risky, it also offers the potential for high returns. For example, if the company is successful, you could see a significant return on your investment. However, there are some risks to consider when investing in start-ups. For example, many start-ups fail, and you could lose your entire investment if the company goes under.
Startups are becoming a growing alternative investment option because the barrier of entry has finally changed. In the past, it was difficult for smaller investors (accredited included) to get in on early-stage companies. However, now there are platforms that make it easy for anyone to invest for as little as $100-$1000.
The key to investing in startups is diversification. By investing small amounts into a variety of companies, you’re less likely to lose everything if one of them fails. It’s also important to do your homework when it comes to startups. Make sure you understand a startup’s financial goals, management style, team, the lead investor, and balance sheet. At the very least you should know how much cash on hand a startup has, as well as projected earnings and expenses a startup expects to incur throughout the life of the business.
One alternative investment that has gained popularity in recent years is farmland. Farmland can be a more stable investment than other options, such as stocks or bonds; it also offers the potential for appreciation. If you’re looking for a more stable alternative investment, farmland may be the right option for you. Farmland is an excellent inflation hedge as it offers a high degree of liquidity and the value of land typically appreciates along with rising prices.
The best way to invest in farmland is through private investing. These platforms offer investors the ability to invest in farmland without having to purchase the land themselves. Farmland can be a great alternative investment for those looking for stability and appreciation potential despite considerable inflation and rate hikes
These pooled investments offer investors the ability to own shares of farmland without having to purchase an entire farm. However, there are some risks to consider before investing in farmland. For example, weather conditions, local laws, and federal government regulations can impact crop yields, which can affect the value of your investment. Expertise in farmland is highly recommended when picking farmland based on location and local laws.
Listed here are just a few examples of alternative investments. There is a wide range of alternative investments available and they are a phenomenal way to diversify your portfolio and potentially generate higher returns.
If you're looking to jump into alternative investing right away then consider life settlements, racehorses, ATMs, startups, and farmland when investing. However, please remember that alternative investments come with their own set of risks. Before making any decisions, be sure to do your research and track your investments using Vyzer. Vyzer organizes your entire financial life into one place through automating, monitoring, and tracking. The best part? We offer portfolio projections and insights for you to understand how your net worth and cash flow will look in the future.