If you’re at a point where you are financially healthy and want to maximize returns on your investments, it might be time to consider unconventional investment ideas. Thinking outside the box and incorporating alternative investments is one way to diversify and grow your portfolio.
Challenges with Traditional Investment Assets
Conventional investment assets—stocks, bonds, and cash—are a great place to start, especially as part of a long-term retirement plan. However, investing in public companies through stocks puts you at the mercy of market swings and other factors that are out of your control. This can be one of the riskiest and most volatile asset classes. Getting the timing right to buy and sell is key, and most people don’t have the time or skills to do this in a way that consistently maximizes returns, especially in the short term. Additionally, researching which companies to invest in is equally as important, but this is time-consuming and challenging.
Bonds offer a reliable fixed return that can be lower-risk, but they also tie up your capital for a period of time. As we learned in 2022, this can mean that you miss out on higher yields when the market moves.
Making money on cash through a high-yield savings account or money market comes with practically zero risk. However, the reward is similarly low and the returns are only for short periods of time.
Many investors choose to diversify among traditional investments with a balance of stocks, bonds, and cash that aligns with their financial goals and risk profile—but this isn’t the only path.
Benefits of Alternative Investments
Any asset outside of the three traditional options can be considered an alternative investment. Unlike assets available on the public market, alternative investments are privately held and managed, which means they aren’t necessarily available to everybody. Becoming an accredited investor gives you access to a wide range of alternatives, which means more potential for returns, but there are still key risks to watch out for.
In addition to diversifying across traditional assets, including alternative investments in your portfolio offers protection against market swings, particularly if you have a mix of non-correlated assets. Alternative investments can come with higher risk, but they also offer the potential for a higher return on investment.
The biggest risk in private investments tends to be “illiquidity,” which means you cannot easily sell your investment like a stock or bond. But remember, highly liquid does not necessarily mean low-risk!
Four Unconventional Investment Ideas to Consider
Nontraditional investments come in a range of shapes and sizes, from comic books to small businesses to industrial warehouses. Choosing the right mix for you will depend on your risk tolerance, personal interests, and the level of engagement you want to have.
1. Private Equity and Venture Capital
The goal of a business is to make a profit, and if you’re an investor in a profitable company, you have the potential to generate returns. You can do this through private equity by investing in funds that grow and sell businesses. Venture capital is a similar type of investment, but the focus is on early-stage and startup companies, making both the risk and the potential reward higher.
2. Collectibles
If you have a passion for wine, vintage cars, baseball cards, art, or any other type of collectible item, this asset class might be a good fit for you. Success depends on staying on top of the market to know what to buy and when to sell it. Because they are so dependent on niche markets and cultural trends, collectibles can be volatile, and they come with the risk of extremely low liquidity.
3. Real Estate
Real estate is a tried-and-true investment, especially if you’re committed to the long term, but it does come with unique challenges. Whether you fix and flip or generate rental income, owning property means that you are responsible for maintaining it, so there is time and cost associated with the investment. If you’re not interested in this level of management, real estate might not be the best fit.
4. Mortgage Debt
Investing in mortgage debt through a hard money lender allows you to generate passive income from real estate without the hassle of owning property. You make loans to borrowers through a hard money lender, using the borrower’s real estate equity as collateral, and you generate regular income from the interest payments. Depending on the fund, the lock-up period can be relatively short, providing better liquidity than many other unconventional investments.
Explore Your Options with Socotra Capital
Socotra Capital is a hard money lender that allows you to capitalize on alternative financing opportunities by investing in private loans. We have a proven track record and a long history of generating returns for our investors. If you’re an accredited investor, you can get access to more detailed information about the rate of return and fund options we offer.
Learn more about unconventional investment ideas and all of your investment options in our Guide to Building a Resilient Portfolio.
