5 Alternative Investments to Grow Your Wealth Beyond Stocks
Hey there! If you’re feeling like the stock market is a bit too unpredictable or overheated lately, you’re not alone. Many investors are searching for other ways to grow their money outside of just buying stocks and bonds. Today, I’m going to break down five alternative investment types that you might not have thought much about but could seriously boost your financial game. We’ll dive into what they are, how they work, and how you can get started—even if you’re not a Wall Street pro.
So, grab your favorite drink, and let’s talk about some cool ways to invest beyond the usual suspects.
What Are Alternative Investments?
Before we jump into the five types, let’s quickly clear up what alternative investments mean. These are any investments that don’t fall under traditional stocks, bonds, or cash. They often include things like real estate, private companies, collectibles, commodities, and more. They usually have different risk profiles and returns, and sometimes they’re less correlated with the stock market, which can help diversify your portfolio.
1. Private Equity: Investing in Businesses Before They’re Public
What Is Private Equity?
Private equity is basically putting your money into private companies—think startups or companies that aren’t listed on the stock market yet. Instead of buying shares of Tesla when it’s traded publicly, you’d be investing in Tesla before it went public if you had the chance.
There are three main flavors of private equity:
- Venture Capital (VC): This is about investing in startups or early-stage companies that have huge growth potential. Think Silicon Valley types investing in the next Facebook or Twitter.
- Growth Capital: This is for more mature companies that need funds to expand or restructure. Examples include companies like Airbnb or Deliveroo looking to grow into new markets.
- Buyouts (Leveraged Buyouts): This is when a company is bought outright by investors, often to improve its operations and sell it later for a profit. A famous example is Blackstone’s $26 billion purchase of Hilton Hotels during tough times, turning it around for a big gain.
How Can You Get Involved?
Private equity often sounds like a “big money” game, but you can start small. For example, investing in a friend’s startup or small business is a form of private equity. You provide capital and get a share in the business. It’s riskier than buying stocks, but the returns can be huge if the business takes off.
2. Private Debt: Lending Outside the Bank
What Is Private Debt?
Private debt is like lending money to companies or people but not through traditional banks. Instead, it’s through private loans where you act as the lender. You earn money by getting interest payments and eventually getting your principal loan paid back.
A Simple Example
Imagine your friend Mike finds a real estate deal but can’t get a bank loan because he’s maxed out on mortgages. He comes to you for a loan. You review the deal, trust Mike, and lend him money using the property as collateral. You get paid interest regularly, and if Mike defaults, you have the property to cover your losses.
Why Consider Private Debt?
- You get a steady income from interest payments.
- It’s usually less volatile than stocks.
- You have collateral to protect your investment.
But, just like any loan, there’s risk if the borrower can’t pay you back.
3. Collectibles: Turning Passion Into Profit
What Are Collectibles?
Collectibles include things like rare cars, trading cards, art, and even digital assets like NFTs. While some might think collectibles are just fun hobbies, many have outperformed the stock market over the past couple of decades.
Why Are Collectibles Valuable?
It comes down to scarcity and demand. When something is rare and people want it, prices go up. But unlike stocks, collectibles don’t pay dividends or interest, so you need to sell them to realize gains.
Cool Examples
- A 1983 Porsche 911 SC air-cooled model bought for $21,000 was fixed up and sold for $52,000.
Risks to Keep in Mind
- You need to find the right buyer to sell at a profit.
- No passive income, so you’re relying solely on appreciation.
- Market trends can be unpredictable, especially with newer assets like NFTs.
4. Real Estate: The Timeless Asset Class
Why Real Estate Is an Alternative Investment
Real estate is actually the world’s largest asset class and can be a fantastic alternative investment because you get both utility and income. You could live in the property, rent it out, or sell it for a profit.
Different Types of Real Estate
- Residential: Single-family homes, apartments where people live.
- Commercial: Office buildings, retail spaces, warehouses, medical buildings.
- Industrial: Warehouses and factories.
- Land: Raw or undeveloped land with potential for future growth.
How Does Real Estate Make You Money?
- Rent: Regular rental income is like a dividend.
- Forced Appreciation: You can increase the property’s value by improving it, raising rents, or optimizing operations.
- Tax Benefits: The IRS offers many tax advantages for real estate owners, including depreciation and 1031 exchanges to defer capital gains taxes.
Getting Started Without Buying a Whole Building
Platforms like Fundrise make it possible to invest in commercial real estate projects without needing millions of dollars or being an accredited investor. You can build a diversified real estate portfolio with relatively little upfront capital.
5. Commodities: Real Assets That Hedge Inflation
What Are Commodities?
Commodities are natural resources like oil, natural gas, gold, silver, and agricultural products. These are physical goods used in industry and everyday life.
Why Invest in Commodities?
- Inflation Hedge: Commodities prices often rise when inflation increases, protecting your purchasing power.
- Diversification: They don’t move in sync with stocks and bonds, reducing portfolio risk.
- Profit Potential: If demand grows, prices and profits rise.
Things to Know
- Prices can be volatile and influenced by global events.
- You can invest via futures, ETFs, or commodity funds without physically buying the goods.
My Take: How to Succeed with Alternative Investments
Specialize and Know Your Stuff
These alternative investments aren’t “set it and forget it.” You need to become knowledgeable about whichever type you choose. For example, if you’re investing in a car wash business, you should understand traffic patterns, equipment costs, utility bills, and competitive factors.
If you don’t specialize, it’s better to pass on deals you don’t understand than to throw money at something blindly.
Why I Love Real Estate
Personally, I’m a big fan of real estate because of the tax advantages and the ability to force appreciation through management. Commercial real estate, in particular, offers opportunities to grow wealth through increasing net operating income and using tools like cash-out refinancing or 1031 exchanges to defer taxes and reinvest.
Start Small, Dream Big
You don’t need millions to get started. Whether it’s lending money to a friend (private debt), buying a collectible car, or dipping your toes into real estate crowdfunding, there are options for all levels of investors.
Wrapping It Up
So there you have it—five alternative investments that can add diversity, reduce risk, and potentially increase your returns beyond just the stock market. Private equity and debt let you invest directly in businesses, collectibles turn passion into profit, real estate offers utility and income, and commodities hedge against inflation.
Remember, the key is to specialize, do your homework, and invest in what you understand.
If you want to dive deeper into these topics, there are courses and communities (like Whiteboard Finance University) that can help guide you along the way.
Thanks for reading, and here’s to building your wealth in smart, exciting ways!
FAQ
Q: Are alternative investments riskier than stocks?
A: They can be, especially because they’re often less liquid and require more specialized knowledge. But with risk comes potential for higher returns and diversification benefits.
Q: Can I start investing in private equity without being wealthy?
A: It’s harder but possible through platforms that pool investors’ money or by investing in small businesses you know personally.
Q: How do I know if a collectible is a good investment?
A: Look for scarcity, demand, historical price trends, and authenticity. Research is key!
Q: Is real estate investing only for the rich?
A: No! Crowdfunding platforms let you invest with small sums, and you can also start with residential properties or partnerships.
Q: How do commodities protect against inflation?
A: When inflation rises, the price of raw materials usually goes up too, so your investment keeps pace with rising costs.
Ready to explore beyond stocks? Start with what interests you most and go from there. You might just find your next winning investment!
