Everyone wants to find the best investments – that’s a natural thing to want.
However, finding the best investments isn’t exactly easy or straight forward.
Are we looking for the best investments for the long term? The best investments right now or for the next couple of years? What’s the risk of either of these choices?
We’ll explore all of those questions, and more, in today’s post.
This post was written in partnership with Your Money Geek.
The stock market has a lot of people spooked right now. The massive swings from day to day, week to week, and from quarter to quarter are more than many people can take. The second quarter of 2020 is a perfect example.
Take a look at some of the returns of the S&P 500:
- February 12 to March 18: -27%
- March 4 to March 11: -12%.
- On March 12, the index fell by -9.5%. That one day drop was the largest since 1987
That volatility was enough to drive many individual investors out of the market entirely. Which is a terrible thing to do!
Not only because things quickly got better, which they did, but because over the long run things will almost certainly get better.
From the March 18 low to June 3, 2020, the S&P 500 gained 31%, erasing all of what it lost. In the second quarter of 2020, the S&P 500 increased by 20.54%. For the year, it’s down -3.09%.
The stock market can be the wild west at times, and for those who want further diversification outside of the typical stock and bond market, here is a list of alternative investments to consider.
Alternative Investments 101
Alternative investments are a great way to dampen risk in a portfolio.
Much of what we’ll talk about in this post we’ve discussed in previous posts on Your Money Geek. However, we’ve found some additional options we think worthy of consideration. The SEC calls these investors accredited investors.
The idea behind the rule is that accredited investors (the wealthy) are more sophisticated and have the cushion to take more risk that comes with some alternative investments.
To be fair, we want to offer our thoughts on the best investments right now for both accredited and nonaccredited investors. Some of these we’ve mentioned before. Others we have not.
Please keep in mind that what we focus on here are investments to help you diversify your portfolio. They are not always tied to the stock markets and will not move in the same direction at the same time.
With that background, let’s get started.
List of Alternative Investments
We will break down the list of alternative investments into 5 categories.
There are many choices in each category, but we will highlight some we feel are unique and some that trade publicly and are readily available.
1. Real Estate Investment Trusts (REITS)
REITs are a familiar investment people use for diversification. There are public and private REITs.
Some REITs invest in almost any kind of real estate. Some specialize in a specific area. Others diversify across many types of real estate. And some need to be crowdfunded, like through the platform Fundrise.
2. Publicly Traded REITs
There are dozens of publicly-traded REITs on the market. By publicly traded, we mean that anyone can purchase them, and they are available on a public market exchange. The most common are mutual funds or ETFs (exchange-traded funds).
We like REITs that are low cost and that mirror a real estate index. Indexes capture the returns of all the securities within the index. They are passive investments. That means they do not have a fund manager picking which stocks to buy and sell.
Here are some to consider.
VNQ is a vanguard fund that invests in a diversified portfolio of REITs that invested in real property and the types of real estate (office buildings, hotels, etc.) The goal of VNQ is to closely track the return of the MSCI US Investable Market Real Estate 25/50 Index. In doing so, the fund invests in the REITs included in this index. It has a low expense ratio (0.12%) and has 183 holdings in the fund. It’s a great low-cost option to diversify into real estate.
REET is a global REIT, meaning it invests in real estate inside and outside the U.S. The real estate in REET mirrors the FTSE EPRA Nareit Global REITS Net Total Return Index. Like VNQ, the iShares Global REIT has a low expense ratio that comes in at 0.14%, slightly higher than VNQ.
Though average annual returns lag other REITs, most of that is due to negative returns for 2020. Except 2018 which showed a loss of -4.89%, yearly returns since its 2014 inception are positive. The best year’s performance was in 2019, with a gain of 23.89%.
A unique option on the list of alternative investments is collectibles. They are available to both accredited and nonaccredited investors. Mythic Markets offers investors the opportunity to invest in fractional shares in rare pop culture collectibles.
Some things you might find in their marketplace are vintage comics, Magic: The Gathering, Pokemon, film & T.V. memorabilia, eSports Teams, and sports memorabilia.
Because collectibles are rare and unique, they do not correlate with the stock market. The result is the chance t own an investment that brings true diversification to your portfolio. Like any alternative investment, investors should limit that percentage owner in their portfolio. Nonaccredited investors can only hold up to term percent in shares.
If you are into collectibles, Mythic Markets may be something to consider. Even if you’re not, collectibles might be a good option.
Read our detailed review for more information.
4. Fine Wine
If you are one who enjoys a glass of fine wine now and again, consider that the wine you drink might be a good investment. Vinovest offers investors a way to invest in fine wine without having to do the research, store, protect, and preserve the wine. How do they do it? With technology and expertise.
Vinovest is an online platform to allow everyday investors to reach the fine wine investment field, an asset class that has traditionally only been available to the ultra-wealthy. On average, fine wine has provided an average return of 11.6% since the mid-1980s. The team at Vinovest measured their portfolios’ correlation in the last two market downturns. They found it to be negative, meaning it provided good diversification.
And that’s the theme of looking for the best investments right now. We want those that bring diversification and noncorrelation to the stock markets.
Vinovest checks all those boxes. Read our full review to learn more.
Another unique alternative investment is farmland. Most investors would never consider an investment in farmland, thinking they would have to invest a large sum of money. If you’re trying to invest in farmland on your own, that is likely the case.
However, we found a great option with a low minimum investment. The company is FarmTogether. Though one needs to be an accredited investor to participate, the minimums are much smaller than most alternative investments.
The typical investments range from $10,000 – $50,000 per transaction. That $10,000 number is much more accessible than many of these types of offerings. And there are precious few funds that offer investment in farmland with cash flow.
Real land is less subject to inflation and more stable than many other investments. For one thing, we’re not making any more of it. The law of supply and demand means it’s likely to increase in value. As a tool for diversifying your stock and bond portfolio, we think Farm Together is an excellent option for accredited investors.
Read our full review to learn more.
The Marketplace to Find the Best Investments
When we think about alternative investments, we try to get outside the box and look for unique options outside of publicly-traded REITs, though we believe they are a great place to start. If you want to do your research to find good choices, there are a couple of ways to go.
First, you can go to our good friend Google and input and search until your heart’s content. Many people enjoy that process. My wife is one of those people. Her choice isn’t investments, but she can spend hours researching something she’s interested in finding. That’s not me. I like to simplify things.
That’s where option two comes into play. MoneyMade is an online marketplace where investors can look for alternative investment options. They have done much of the research for you. I’ve talked about them in another article. Here’s what we said:
“It’s a discovery engine built to help you find and compare all types of investment opportunities, spanning from alternative investment platforms through to Robo Investing.” And it’s super simple to use. Just enter the criteria of the investment you’re looking for and let MoneyMade do the rest.”
Read our review to learn more.
List of Alternative Investments Summary
Today’s post is by no means supposed to be a comprehensive guide to finding the best investments right now. However, we hope it offers things you may not have heard of in the past. We left out recommendations on crowdfunded real estate for this post. There have been numerous reviews and articles written about these options. If you’d like to hear our thoughts on those, here is our analysis of two crowdfunded REITs we think merit investment.
It’s relatively easy for investors to find index funds and ETFs for the stock and bond portion of their portfolios. These funds provide a good foundation for investors. With that said, to get further diversification, portfolios need noncorrelated assets.
Hopefully, one of the investments listed here can help fit a need for you.
Fred is the Founder and President of Leamnson Capital Advisory, LLC. He helps people preparing for and in retirement with financial, retirement, Social Security, and estate planning. At Your Money Geek, he focuses on three primary areas: Personal Finance, Overcoming Adversity, and Lifestyle. He has been quoted in Forbes, USA Today and appeared in Money Magazine and MarketWatch, and many other publications.