4 Examples of Alternative Investments
Looking to diversify your portfolio? Here are some of the best alternative investment examples on the market right now.
There’s a lot more to investing than just stocks and bonds, and if you’re like many average investors, you have yet to dip your toes into all the potential growth out there.
And thanks to technology innovations, alternative investments are now more accessible to everyday investors than ever before.
Here’s a look at some of the most common alternative investment examples—and why it’s time to add them to your portfolio.
What if you could own a Picasso? Or a piece of the next Picasso? Art investing is a popular form of passion investing, and it gives you more than just something beautiful to look at.
When we talk about art as an investment, we’re talking about blue-chip art. Named for the most valuable chip on the poker table, blue-chip art is art of great value (think several millions of dollars) that is expected to hold steady or increase in value over time regardless of how the economy performs. Blue-chip art is typically made by big names in the art world on the scale of Monet, Goya, Basquiat, and Warhol—artists with a proven record of huge sale numbers at auction.
The nice thing about art is that it derives value from its intrinsic qualities as an artwork and the popularity of the artist in question, not from stock market performance. You can generally rely on art (especially by auction heavyweights) to hold steady or appreciate in value, and if you have connections to the right market insiders, you can leverage your knowledge for profit.
Historically, the market required huge buy-ins. These days, blue-chip art is increasingly accessible to regular investors thanks to the same model used in crowdfunded real estate—at Masterworks, we’re pioneers of the concept in the art world.
A hedge fund is a type of actively managed investment sort of like a mutual fund, in that it pools funds from a group of investors and then invests the pool in the hopes of turning a profit. They take their name from a practice called hedging, which is when you offset the risk of one investment by taking the opposite position in a related asset, as in the classic long/short equities model. Not all hedge funds use hedging anymore, but the name stuck.
While pooled investments invite easy comparisons to mutual funds, the similarities end there. Unlike mutual funds, which are traditionally limited to stocks and bonds and certain strategies to grow them, hedge funds are only limited by their mandate. They can invest in pretty much anything—including other alternative investments—and they have wide leeway in the strategies they use.
The one thing most hedge funds have in common is their aims: where mutual funds are characterized by market neutrality, hedge funds expect to make money regardless of whether the market goes up or down. For this reason, they resemble traders more so than traditional investors.
Another popular alternative investment made accessible by crowdfunding is real estate. In fact, real estate is the world’s largest asset class.
When we talk about real estate, we’re not talking about the house you own. We’re talking about investment real estate, which is purchased for the explicit purpose of generating income. This happens in one of two ways: by flipping the property to make a profit on the sale or by renting out the property.
The nice thing about real estate is that it’s a tangible asset in limited supply. If you invest in the right real estate, you can generally expect it to appreciate in value over time, and you can earn income in the interim while it appreciates.
Peer-to-peer (P2P) lending is a pretty new phenomenon, but it’s taken off like wildfire.
Picture taking out a mortgage with your bank. The bank is the lender, and they earn money on the loan from the original investment balance and interest collected on the balance over the lifetime of the loan. P2P lending uses exactly the same setup, except instead of a bank, you’re the lender.
Since most people don’t have the kind of money to finance P2P loans on their own, these are often crowdfunded loans pooled from a collection of smaller investors. Everyone in the pool receives their share of interest on the loan in addition to their original investment—and interest tends to be higher than anything you would see in a savings account.
Here’s the catch: P2P lending usually markets to people who couldn’t qualify for traditional bank loans, which means there’s a higher risk of default. That said, since you’re the lender, you get to set the parameters for an acceptable borrower, like minimum acceptable credit score.
Put The Best Alternative Investment Examples to Work
At Masterworks, we understand the power of alternative investments for your portfolio—and we’re big fans of blue-chip art. After all, blue-chip art has outperformed the S&P 500 by 180% from 2000 to 2018. And now, blue-chip art investing is accessible to ordinary investors like you.
When you become a member, you have the chance to purchase shares in multi-million-dollar artwork for as little as $20 per share. We handle the research, authentication, and auction process for you. All you have to do is find shares in art you love—and bring your love of art, of course. Ready to get started? Fill out your membership application today.