Capital investments have been a traditional means of building wealth and generating revenue, especially in this country, for many decades. However, most investors tend to focus on traditional means of investment. For example, stocks, bonds, mutual funds, and real estate all have long histories and proven track records of return. This makes them attractive to potential investors across the spectrum, each with a distinct set of risks and rewards, but all of which fall under a similar category of conservative, yield-driven investments, more or less guaranteed to outpace inflation over the long term.
However, there are a number of alternative investment options you should be considering for your investment portfolio.
The Benefits of Alternative Investing
Why would you consider investing in something less proven or less traditional than stocks and bonds? There are a handful advantages you’d be wise to consider:
- Diversification. One of the biggest precepts in successful investment is diversification. Diversifying your portfolio helps you to mitigate risk and secure a more stable path to long-term gains. Why not diversify your portfolio beyond the standard model of investing that we’ve established over the past 100 years?
- Novelty. This motivation is less convincing from a pragmatic standpoint, but it’s impossible not to mention the novelty of investing in a new strategy. If you have fun investing, these could take your enjoyment to the next level.
- Flexibility. Most of these forms of alternative investment are so new that they’re malleable. The legal and practical rules for their development aren’t concrete, and there’s plenty of wiggle room when it comes to consumer choices. This gives you a higher degree of flexibility in terms of your investments, and quite possibly, a degree of input in how the industry develops. Simply voicing your opinion or backing one organization over another could help move the industry in the right direction.
4 New Ways to Invest
With those motivations out of the way, consider these four novel investment methods to fulfill your alternative investment needs:
- Equity crowdfunding. Equity crowdfunding is a lot like typical crowdfunding, but with a few perks that make it an actionable capital investment. It’s a relatively new development, as crowdfunding laws mandated that no participants could contribute capital in exchange for equity in a campaign. Today, the laws are still tight (and under development), so only select qualified investors can take part. However, in the near future, it will likely be possible for average investors to take part. You can select the campaigns, companies, and ideas you think have the highest potential for profitability and maximize your potential return.
- Legal funding. Legal funding is a way of investing in court cases with a promising potential payoff to the plaintiff. Mostly driven by companies and organizations, this method of investment involves a rigorous underwriting process, evaluating the risks and rewards of potential court cases. If the plaintiff is awarded, the legal funders see a return on their investment. If he/she is not, he/she doesn’t owe anything. The key here is to select the right plaintiffs and the right cases.
- Algorithm-based investing. Algorithm-based investing isn’t exactly new—various investment companies have been using them for decades—but now they’re far more available to the modern consumer. Companies like Wealthfront are popping up left and right, promising investors an algorithmic and reliable approach to investing. These brands have only been around for a few years, so they don’t have much in the way of long-term data to support their abilities, but so far, investors have been pleased with the results. Algorithms have been responsible for periodic abnormalities in stock price fluctuations, though modern variants feature built-in safety mechanisms to prevent things like mass selloffs that cause them.
- Crowd-based loan distributions. Crowd-based loan distributions, sometimes called peer-to-peer lending, is a relatively straightforward model with varying degrees of potential payoff. Much like a typical crowdfunding campaign, a platform collects relatively small investments from a large number of contributors, and makes that capital available to lenders, who can also apply to the same platform to secure a loan. Potential borrowers are evaluated in terms of credit history and are given a score, which contributors can then use to balance the risk and reward of their contributions. The higher the risk of the borrower, the higher the interest rate will be.
Alternative investing isn’t for everyone, and traditional modes of stock, bond, and mutual fund investing are still solid means of diversifying your portfolio and achieving a significant return. However, if you’re in the market for something a little more adventurous, or something that takes advantage of more modern technology, consider one of the above investing methods to round out your strategy in the modern era.