Top 10 Alternative Investments for 2020

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Every year or so, it’s a good idea to reflect on the word “alternative.” We attach this term to all kinds of financial matters - from lending to investing and everything else that seems a bit off the beaten path. The alternative title gets used so much it starts to lose its meaning after a while; we forget that these strategies are fluid, providing a changing landscape that dances around the more traditional, sometimes stale options like stocks and bonds.

Ten years ago, you wouldn’t have heard of peer-to-peer lending as the leading option for alternative investors. Today, it’s so popular you could make a case it’s more essential than alternative. With a hot economy that’s likely to hit the breaks in the relatively near future, everyone should be on high alert for new ways to grow money. These novel investments might come in the form of a new twist on an old favorite, such as real estate or business investing; or, we could be in for an emerging market that catches everyone off guard.  

Anyone interested in maximizing returns on investments ought to have a few wild cards in their portfolio. Keep your stocks and bonds, enjoy your dividends, and then see what other assets are ripe for picking. If you have any intention of building your wealth in 2020, I’d encourage you to consider any or all of the following.

1. Gold

Until the world gets flipped on its head, gold will provide a sensible investing option. The value of this precious metal continues to rise and has never taken the same hit as other types of investments. With interest rates lower than one might expect in a time of economic growth, excess inflation could be something to look out for and gold comes with built-in inflation resilience.

Gold also offers a variety of investment tactics. I’ve got clients investing in gold mining companies and gold accounts, as well as regular old bricks of the shiny stuff. If you like the idea of an investment that lives in your safe at home, this is a fine option.

Instead of waiting around for those infomercials and radio ads that announce when the time is right for gold buying, invest now. Trust the historic worth of the metal and enjoy the rising value.

2. Rental Property

There’s never a bad time to buy real estate (although there are certainly properties to avoid). Depending on where you live and what you have to invest, you can find commercial and residential properties that are in high demand.

The cost of housing in urban areas and many suburbs has more people renting than ever before. Not only can a vast number of millennials not afford to buy, but a good number of them simply prefer to rent indefinitely and avoid the costs of ownership. This makes the rental market appealing, and also allows landlords to get innovative with what type of property they make available. Eight years ago, a craftsman house might have been the perfect thing to buy, renovate, and resell. Now, you could buy that same house, turn it into a four-plex, and take in multiple rental payments while holding onto the equity.

Meanwhile, the commercial real estate landscape is changing as so many malls and established businesses close their doors and take most of the vending online. Creating a part-time rental space for pop-up businesses offers a new way to serve tenants who don’t want to get locked into traditional rental agreements. I’ve seen commercial kitchen spaces throughout Texas transformed into buildings that operate in multiple capacities and serve numerous vendors, bringing in far more revenue than renting to one restauranteur who may or may not have enough success to cover his or her monthly expenses.

The massive umbrella of real estate covers so much ground. Find out what people are doing in your area and see what you could imagine undertaking.

3. Crowdfunded Real Estate

It was only a matter of time before other investment strategies tried out the crowdsourcing model that lending sites have popularized. None of us should be surprised that we now have the option to go online and buy properties with complete strangers.

Fundrise stands out among these sites, allowing ordinary people with limited funds to get in on the buying of properties. The revenue stream depends on how much you’re able to offer and how many buyers you join forces with. Once the deal is done, you don’t have to handle any of the landlord duties that so many investors find offputting. Generally speaking, people who use Fundrise see about 8-12% in annual returns.

In a time when buying a property outright might prove more of a financial burden than a blessing, a crowdfunding approach can allow you to incrementally build wealth and knowledge before you eventually make a bigger purchase. This also lets you hedge your bets in case you sense an oncoming drop in the real estate market.

4. Peer-to-Peer Lending

Love crowdfunding but don’t want it to involve your real estate? Stick with the classic lending option, through Lending Club or Kabbage or any number of P2P sites. This type of alternative lending enables the alternative investor to provide loans for any number of alternative purposes, including real estate.

Banks are plenty busy lending billions of dollars to giant companies and clients, leaving the smaller fish to assist smaller lenders. You can help someone expand a business or pay off their car loan, all depending on how much you want to invest and the risk you want to take on. The infrastructure of sites like Lending Club does a lot to mitigate that risk, so it’s not like you’re handing a bag of money to some nameless person who promises to later return the bag with a few extra dollars in it. You’ll know the volatility before you get started and won’t ever have to invest outside your comfort zone.

Perhaps the biggest perk of this form of crowdsourced lending is the high-interest small loans people are willing to take out. Since Chase and Wells Fargo aren’t about to lend $2,000 to someone trying to pay off a credit card balance, you can get an impressive rate that still allows the borrower to save money in the long run. The credit score issues that send big banks running open the doors for ordinary investors to get a good kickback off a relatively small loan.

5. Land

Farming probably sounds like hard work, and with good reason. America’s farmers get up with the sun to deliver the produce, dairy and meats that keep the country fed. That takes an effort most people aren’t capable of, and yet we still have an opportunity to support and share in the profits.

I’ve become a big fan of AcreTrader, an investment site that takes the uncertainty out of farmland investing. By using this service, you have options and an intuitive platform that helps put your dollars to work. With farmland beating out numerous investment classes and providing a real asset, it’s no surprise that advisors with expertise in the agriculture industry can help turn your money into a steady stream of returns.

Usable land gets more and more scarce every year, while the need for food only escalates. You’ll have to look pretty hard to find an investment at more of a premium than farmland right now, making a site like AcreTrader incredibly useful.

6. Small Businesses

I bought a small business in the healthcare sector a couple years back. I liked the business model and the people behind the operation, so I used my money to help sustain and grow the company. The rewards - both financial and personal - have been off the charts.

You might not be in a position to purchase 100% of a business, but providing at least some capital in exchange for a stake in the company can still lead to impressive gains. When entrepreneurs are trying to either start or grow their operations, a little extra cash flow makes a world of difference. Should you give a business owner $50,000 and that money enables the company to double in size, said business owner will happily offer you a percentage of the future profits because the future profits are about to increase twofold.

I love business investing because of the flexibility it offers investors. I got heavily involved with the business I purchased, but that’s because I saw the potential and wanted to play a big role in the company’s development. For a more casual investor who doesn’t have time to get involved with the day to day, it’s easy enough to just let your money do the talking. Whether it’s lending through a P2P site or buying a tractor for a neighborhood rancher in exchange for an annual cut of his income, there’s a lot of room to play within this investing field.

If you choose to get heavily involved as a business investor, expect it to take up a lot of your time. You probably won’t have time to actively grow a business while also working 70 hours a week at your law firm, so just make sure you don’t get in over your head. As long as you don’t overextend yourself, I think investing in a small business can serve you extremely well.

7. Collectibles

You can, if you know what you’re doing, invest a lot of money in toys. People with an eye for rare and limited products have made gobs of money on action figures and dolls. The hardest part about this type of investing, and why I’ll only pitch it to certain clients, is detaching your emotional connection to whatever thing you’re hoping will increase in value.

With collectibles, it’s not about how much you loved a certain figurine when you were young, but how that product has aged and how its present condition sets it apart from other replicas. That’s why original packaging makes such a big difference with price. It’s not just the condition of the toy inside the box; it’s that very few people kept both the toy and the box.

Of course, this type of investing goes well beyond action figures and dolls. Stamps, art, wine, and sports memorabilia can add thousands of dollars to your portfolio. While certain collectibles can fall out of public favor, anything viewed as rare will likely stay precious for the remainder of its life. As long as you can keep that stamp or coin collection in good shape, it will hedge against inflation and increase in value as time passes and the rarity goes up.

Unless you have tremendous foresight, you’ll have more success spending money on something that already has perceived value than you will stockpiling something you hope will become valuable in 10-20 years. And keep in mind that most of today’s toys and trading cards are overproduced, making it harder for them to break into the echelon of rare collectibles. It might take a couple centuries before those Nolan Ryan baseball cards match the worth of Ted Williams and Babe Ruth.

8. Timber

Our resources have tremendous value, and you have a good number of ways to put your money behind them. Timber remains one of my favorite investments year after year because of its manufacturing importance, the continued effort to increase its sustainability, and the variety of ways you can get your money behind it.

For the quick and easy route, talk to your advisor or broker about timber ETFs and REITs. A little bit of typing and clicking will make you the proud owner of some timber shares. As for the returns, you can earn money on timber in a few different ways. If you own timberland, the appreciating value of the property can line your pockets in addition to the harvested wood. There are also biological growth earnings, where trees go up in value as they grow from saplings to usable trunks.

While timber sales are still fairly reliant on housing demand, the global move away from plastic has driven up the value of certain types of wood that can replace common plastic products. Whatever changes happen in manufacturing, timber is an essential commodity across the globe and one worth investing in.

9. Additional Commodities

If we use it, you can invest in it. If we use it a lot, you can make a lot of money off of it.

Wheat, natural gas, zinc, coffee, aluminum, oil, and just about anything else that’s used and consumed regularly could have a place in your portfolio. You won’t buy bushels of coffee beans and put them in a bank vault, but you can get stakes in the businesses that make the coffee or buy land on which the beans are harvested. If shares of Starbucks trade around $100, surely the beans they rely on have a good deal of worth.

Small shifts in consumer habits can often have a profound effect on commodity pricing from one year to the next, and while that creates volatility it does just as much to create opportunity. If aluminum is down, you better believe it’s going back up at some point; oil prices jump around constantly without making oil investors go broke; as long as it makes bread and beer, the wheat market isn’t going anywhere.

Consumer habits being what they are, you can’t go all-in on one of these commodities for a short-term bet. Best to look at the broader picture and plan on a long-term strategy. Commodity investing often feels overwhelming for newbies, but it becomes pretty exciting once you figure it out. At least for finance nerds like myself.

10. Anything You Want

Chances are your alternative investments will fit in one of the categories above. However, there are thousands of ways to make a buck and you might just stumble into something atypical and awesome. If I showed my current portfolio to my 22-year-old self, young me would look utterly dumbfounded. A lot of the investment opportunities that have served me best came out of left field, and my willingness to take a shot on something different turned out to be the best decision I could have made.

That’s what’s so great about these alternative investments. While nothing on this list is strange or foreign, it’s a change of pace from the traditional retirement investing that so many people are beholden to. A simple willingness to change tactics can make you wealthier than you ever expected.

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