For the average investor, we believe that dollar cost averaging the S&P 500 or a similar low-cost index fund is the BEST way to allocate your capital in the long run.
In fact, I’d go to far as saying that the average retail investor should expect no more than the market’s gains in his or her lifetime. Trying to do better will usually only result in mistakes and a hurt wallet. Even some of the best fund managers on this planet can’t beat the stock market.
Some great books on the topic of investing for the lay person include the Intelligent Investor by Benjamin Graham and Money Master the Game by Tony Robbins.
However, if you’re looking to obtain better than average results and you’re willing to put in the time to learn about new asset classes, then this is the post for you. I think this is also a good overview of alternative investment opportunities for institutional investors, though the degree to which it will be a fit for you will vary depending on the size of the fund and level of risk you’re willing to accept.
Here is a list of a few different exciting alternative investment opportunities. I also give examples of some of the top platforms and resources where you can learn more about each type of investment.
1. Equity Crowdfunding
Non-accredited investing in equity crowdfunding offerings was approved by the SEC in May 2016. Already, a few platforms have started to offer equity investment opportunities to the public according to these new regulations. This allows the other 97% of Americans to take part in angel investing. These are high-risk high-reward offerings that now have lower minimums than ever before.
For accredited investors, equity crowdfunding platforms have been helping startups and other successful companies raise funds for a while now. When you invest in a startup company online, you won’t have a huge role in the company, but you’ll have ownership and the ability to capitalize on future liquidity events. There are even larger investors who are taking part in these equity deals.
If you’ve ever wanted to own shares in the next Facebook, Uber, or SnapChat, equity crowdfunding is worth looking into!
Pros:
- Own shares in an asset that can appreciate largely over time.
- Become aware of new trends and behaviors, leading to an informational advantage.
- Network with investors and entrepreneurs.
- Low minimums. Low maximums to prevent major losses.
Cons:
- Illiquid investment. The company must be sold or go public for you to realize your return.
- Less bargaining power. You’re one investor of many.
- High chance of losing your invested capital due to startup failure rates.
- Due diligence and research is required to find the best investments.
Platforms: AngelList, CrowdCube, Fundable, Seedrs, CircleUp, Crowdfunder, WeFunder, EquityNet.
You can learn more about equity crowdfunding for non-accredited investors here.
2. Real Estate Crowdfunding
Real estate crowdfunding has become more popular in the last couple of years, with platforms successfully raising money for high-profile commercial and residential properties. Real estate crowdfunding also ties in with equity crowdfunding, because sponsors can choose between debt and equity for their projects.
We’ve put together an ebook, detailing this opportunity along with some of the major websites, best practices, and ways to make money in this industry.
Real estate is a great way to diversify your investments and earn a stream of returns from actual properties. Unlike a REIT, you’ll be able to be more involved in the investment properties. Don’t get me wrong. There will still be a sponsor and property manager, but you’ll be able to decide which properties you’d like to include in your portfolio and which you’d like to exclude. You can even invest in your local area!
Platforms: Fundrise, RealtyMogul, RealtyShares, CrowdStreet, GroundBreaker, iFunding, Prodigy Network, Patch of Land
Learn more about real estate crowdfunding by checking out our companion website, which has free podcasts and videos.
Pros:
- Invest in debt and equity deals.
- Get to choose the properties that you include in your portfolio.
- Better software management of your investments.
- Relationship building with high-performing real estate management companies and other investors.
Cons:
- More research and analysis is required, though some companies now offer eReits and other financial products to automate the process.
- There are investment minimums and returns are not guaranteed.
- There are associated fees, which vary from platform to platform.
- New industry and best practices are still being determined.
3. Peer-to-Peer Lending
Peer-to-peer lending has become a great way for people to get loans online in less time and with less interest than traditional bank loans. Investors can make small or larger investments in loans and get returns as these investments are repaid by borrowers.
These are known as fixed-income investments and function as an unsecured personal loan to the borrower. The risk and purpose of the loan will affect the rate that borrowers will receive, and therefore your returns. You can take on as much or as little risk as you’d like.
Peer-to-peer lending is becoming a popular way for borrowers to get funding for a number of purposes, including: business, medical expenses, mortgages, and much more. People even use peer-to-peer lending for debt consolidation because of the lower rates that these platforms can offer!
Platforms: Upstart, Lending Club, Prosper, Funding Circle, Kiva, Zopa
You can learn more about peer-to-peer lending here.
Pros:
- Fixed-income or income-producing investments.
- The ability to choose investments, risk tolerance, and diversification.
- Powerful investing software to manage our capital.
- Low investment minimums.
Cons:
- Limited to investments on the platform you choose, unless you invest on multiple platforms.
- No guarantee of repayment or security of capital.
- A diversification strategy is needed.
- Information about borrowers is constrained to what the platform reveals through their rating system.
4. Partnering in a Business
In contrast to equity crowdfunding, where you’re one investor among many, when you are a significant angel investor or a partner in a new business, there is a tremendous opportunity to grow your invested capital in the longterm. But, there is also the significant risk of losing it.
A lot of entrepreneurs are using websites like Kickstarter and Indiegogo. To obtain funding for a startup business. While, backing these types of crowdfunding campaigns will not actually earn you a monetary return, you could approach these creators offering to partner with them!
One industry that has been seeing a lot of growth and success lately is in technology. If you get a chance to invest in tech-related projects, you might see high returns since a lot of these startups are very innovative and quickly become popular. Design projects are also trending.
Platforms like Indiegogo and other equity crowdfunding platforms host a lot of tech and design projects that do well on ecommerce platforms and are looking to raise the money they need to expand more.
Many creators of successful crowdfunding campaigns go on to raise equity or debt funding later on, or might even sell to a larger company. The Oculus Rift, who’s technology is at the backbone of the virtual reality industry, started on Kickstarter and sold to Facebook for more than $1 billion.
You could also partner with a local entrepreneur or find startups in your area using AngelList.
While this is obviously not a good approach for an institutional fund, who’s more likely to see better results with venture capital or private equity financing, it could be an interesting option to explore for retail investors.
5. BitCoin and Virtual Currencies.
At this stage in the game, we see virtual currencies as extremely speculative, but they do present an opportunity for a savvy investor that understands the marketplace dynamics and is willing to risk a bit of their capital.
Just like commodities, take heed! You could quickly end up losing your shirt.
If you’re interesting in learning more about BitCoin and other virtual currency news, I’d recommend checking out CoinDesk. They are the CrowdCrux of virtual currency and have a wealth of information.
6. Buying and Selling Websites or Domain Names
Finally, you can use your extra investment capital to buy and sell websites. Using a marketplace like Flippa or EmpireFlippers, you can find assets to invest in, whether they are ecommerce sites, blogs, domain names, apps, or digital products.
You can also filter these results by the number of monthly visitors to the website, revenue, category, the time that it’s been around, and more.
Honestly, I would not recommend making a large investment unless you have some online business experience, know how to drive traffic, know a bit about SEO/social media, and are willing to manage your investment.
I think that ‘The Neil Patel Guide to Buying and Selling Sites‘ is a good place to start if you’re looking to learn more about acquiring web-based assets.
Pros:
- Usually income producing.
- High growth potential.
- Asset can be used to grow other sites/products.
- Get experience or “buy your way” into industries.
Cons:
- Requires management in most cases
- Technical knowledge needed.
- Online business and marketing skills recommended.
- Need to know how to value web assets.
Conclusion
If you are looking to start investing in alternative asset classes, there are many options available in 2016. For the first time in a long time, unaccredited investors can invest small amounts in equity deals, which opens up the investment market to millions of new people. If you want to get in on this new trend, you should start now while a lot of people still don’t know about it!
Keep in mind that like any investment, these new online methods are not guaranteed and there is always some risk. Make sure that you do a little bit of research and know what you are getting into before you make any investments.
