Alternative investments can help diversify an investment portfolio, making it easier to mitigate market swings. Investing in stocks, bonds, mutual funds and even exchange-traded funds are all good options, and adding in real estate investment trusts can help add diversity.
When investing in alternative investments, you’re breaking free from the broker fees (in many cases) and gravitating to places that may carry more or less risk. Here are two types to consider.
Precious metals
Precious metals, especially gold, are seen as long-term assets that maintains value. Healthy portfolios may have 5-10% allocation to gold or other precious metals with physical form purchases being the optimal choice.
Gemstones are another option, but liquidity is difficult. Rarity and clarity will determine how much the asset is worth, explains GS Diamonds. Value of gemstones can vary greatly compared to gold which has a standard value per troy ounce.
Rio Tinto (RIO, Financial) may be a stock option to consider if investing in diamonds, copper, iron ore or aluminum. The company generated $11.8 billion in net cash from operating opportunities in 2018.
Gold returns are strongest when the stock market is weak. The S&P 500 offered a 157% return between 2012 and 2018, while gold dipped into negative territory with a 22% loss. Between 2000 and 2011, gold prices skyrocketed 443% primarily as investors scrambled to safeguard their investments during the recession.
Peer-to-peer lending
Peer-to-peer lending provides a way to invest in people or businesses. Upstart is one of many options available. The company maintains an 88% rate of loans that are paid in full or current. APR rates for loans start at 8.85%, with investors able to provide loans of $1,000 to $50,000.
Funding Circle is another option, but the focus of the platform is small business. The company has given out over $5 billion in loans to over 40,000 businesses. Loans can range between $25,000 and $500,000, with up to a five-year tenure.
Investing in peer-to-peer lending allows for fixed-income portfolio diversification. Rates can be between 4.99-27.79% with a minimum investment of $250,000.
Disclosure: The author has no stake in the listed investments.
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