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Tuesday, January 31, 2023

6 Alternative Investment Strategies You Can Start Exploring Today

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Did you know that 58% of Americans say they now own stocks? That’s 3% higher than those who reported the same in 2020. Even more impressive is that 25% of stock-owning households make under $40,000 a year.

Those figures should already prompt you to make investments yourself. However, stocks shouldn’t be your only asset, as they’re among the most volatile. Instead, consider including alternative investment strategies to diversify your portfolio.

Portfolio diversification, in turn, can help reduce your loss exposure. That’s because it spreads your money over multiple investment assets. So even if one of your traditional investments fails, you still have others to fall back on.

In this guide, we’ve discussed the top alternative investments you should consider. So, read on to discover what they are, their pros and cons, and how to invest in them.

1. Rental Property Investments

In the third quarter of 2022, the U.S. rental vacancy rate sat at 6%. That’s a considerable decrease of 1.1% from 2018’s vacancy rate of 7.1%.

Those figures show that rental properties have become even more in demand. That’s also why they’re among your best investment alternatives for diversifying your portfolio.

Investing in rental properties requires purchasing real estate properties and renting them out. For example, you can buy a house and renovate it enough to make it ready for occupancy. Then, depending on your preference, you can rent it out short- or long-term.

Either way, rental properties can generate consistent income streams. They also limit your expenses to maintenance and repairs.

You can hire a rental property manager or management firm if you want near-passive income. Of course, you’d have to pay these professionals for their services. However, it can be worth it since they’d take out the hassle of managing your property.

2. House Flipping

Another of the best alternative ways to invest in real estate is to flip properties. It often involves buying a fixer-upper (e.g., a house in dire need of major repairs) and fixing it to make it market-ready. Once you’ve completed the renovations, you can then sell it for profit immediately.

House flipping can net decent profits, especially with flipped properties rising in popularity. For instance, in the first quarter of 2022, they accounted for almost one in 10 U.S. home sales.

To flip houses, you must have experience in evaluating real estate properties. Marketing, construction, and renovating skills are also necessary.

3. Real Estate Investment Trusts (REITs)

Suppose you don’t have much capital but would still like real estate to be part of your portfolio. If so, a REIT is one of the best places to invest your money.

A REIT is a company that owns, operates, manages, or funds income-generating real estate. Some examples of their properties include apartments, hotels, offices, retail centers, and warehouses.

REITs allow individuals like yourself to invest in those properties without buying them. Instead, you only have to purchase shares through a broker. Then, you can sell them on most stock exchanges once their prices skyrocket.

4. Cryptocurrency

Cryptocurrency, or crypto, is any digital or virtual currency secured by cryptography. That security feature makes them almost impossible to counterfeit. They’re also generally not governed by a central authority, making them less manipulable.

Bitcoin, trading as BTC, is the first-ever and still the most popular and valuable crypto. Today, experts believe it has churned out around 100,000 millionaires. That means they own bitcoin that’s worth at least $1 million in fiat money.

There are many other cryptocurrencies you can invest in, including the following:

  • Ether (ETH)
  • Tether (USDT)
  • U.S. Dollar Coin (USDC)
  • Binance Coin (BNB)
  • Binance USD (BUSD)

One of the primary advantages of investing in crypto is that you can start with just a few dollars. Depending on your chosen broker or exchange, they may allow you to buy crypto for as little as $2.

You can then manage your digital currency using bitcoin wallets or cryptocurrency wallets. They can be online, mobile, or desktop apps, while others are hardware, such as USBs. Their primary function is holding and securing crypto, but some let you trade from the app.

5. Commodities

Commodities can be raw materials, agricultural goods, or mining products. Some of the most well-known examples are corn, cotton, gold, and crude oil.

You can invest in critical minerals if you want more sustainable commodities. These include aluminum, cobalt, copper, graphite, and lithium, to name a few. They’re necessary components in the manufacturing of renewable energy technology.

Either way, you can invest in commodities by purchasing physical goods. For example, you can buy actual gold or silver, both of which can serve as a hedge against inflation.

Another strategy is to invest in alternative exchange-traded funds (ETFs) for commodities. You can also purchase stocks of commodity-related firms. These include stocks of companies that mine minerals for renewable energy technologies.

6. Peer-to-Peer (P2P) Lending

Also known as crowd lending or social lending, P2P lending is a form of financial technology. It allows individual borrowers to obtain loans from other individuals. So, instead of borrowing money from a bank or a credit union, a person borrows money from another person.

Let’s say you want to invest in a P2P lending website. In this case, you open an account with the platform and deposit funds into your account. The platform then uses your money to finance the loans it approves.

In exchange for your money, the P2P lending platform gives you a share of the interest payments. That’s passive income right there.

However, P2P lending also carries inherent risks, such as borrowers defaulting. When that happens, you stand to lose a part, if not all, of your invested money.

Consider These Alternative Investment Strategies Today

As you’ve learned in this guide, many alternative investment strategies involve real estate. However, you can start with crypto, commodities, or P2P lending in case you don’t have that much capital. Then, once you can afford it, invest in REITs, house flipping, or rental properties.

Remember that the goal is to add as many assets to your portfolio as possible. That way, you can diversify and minimize your loss exposure and risks.

For more exciting and informative reads like this, check out the rest of our blog now!

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