How to Build Wealth Through Alternative Investments

Can you gain wealth quickly through means other than investing in stocks? For decades now, Wall Street and other international stock markets were the best options for people from all walks of life to get rich. An investor would not have to put much effort or input when engaging with the stock market. Over time, through capital appreciation and dividends, anyone could make tens or even hundreds of thousands of dollars. For that reason, both large, multinational companies and curious individuals would try their hand at these types of investments.

But what if I told you that you don’t have to invest in the stock market to generate a lot of wealth? In fact, I highly encourage trying some alternative means of allocating your money. In early 2021, in the US alone, families with $1 billion and above in assets under management invested a whopping 51%‒54% of their funds into alternatives. Furthermore, there are six times fewer public companies that earn more than $100 million in annual revenue than there are private companies with similar earnings.

Obviously, looking into alternatives is paying off for these investors. Keep reading and let’s go over some of these alternatives and how they can make you wealthier.

Popular Types of Alternative Investments in 2023
Over the years, different types of alternatives have been popular, with a few new options emerging with the advent of technology. As of 2023, some of the most popular ways of investing outside of the stock market include:
  • Private equity
  • Venture capital
  • Hedge Funds
  • Private debt (including direct lending)
  • Commodities
  • Real estate
  • Gold
  • Cryptocurrencies

Some of these types have been around for a while. For example, investing in gold is incredibly popular. After all, the metal is a liquid asset, an inflation hedge, and a long-term store of value. Commodities have also remained a popular investment option. They include metals (such as silver, copper, and platinum), grains, animals, items I occasionally drink, and items you don’t eat, like lumber and cotton. Energy is also a major commodity, usually covering crude oil, natural gas, etc.

The arrival of cryptocurrencies slightly changed the investment game. With the current crypto options being so volatile, they present a bit of a risk, but the gains from investing successfully in them are huge.

Pros of Alternative Investing

There are plenty of reasons behind so many investors looking into the options listed above. First and foremost, it offers a potential for higher returns than public investment. After all, you are putting money into assets that are not necessarily known to the general public. Moreover, if you as investors have no free time and need a passive source of income with some automatization, then alternative investing is tailor-made for us. For instance, bots can perform cryptocurrency mining while you are away.

Next, there are both direct ownership and direct benefits from alternative investing. In terms of ownership, when you trade on the stock market, you do not physically own a section of an asset. However, when you buy an expensive work of art or a particular amount of commodities, you actually own them. The investment is under your direct, total control.

One of the biggest benefits of investing in alternatives includes tax write-offs. For example, oil and gas investments both have extremely favorable tax treatment. In addition, if our alternative has a decent retirement fund, you can use it for investments that are either completely tax-free or tax-deferred.

Finally, each alternative investment provides you with a hedge against the stock market’s performance. The return rate would outclass the stock market, provided it performs well.

Cons of Alternative Investing

So, with tax benefits, direct ownership, higher returns, and passive income, you can see just how appealing alternative investing is. In fact, if done right, the value of your assets can double or even triple within a short period of time. But alternative investments aren’t perfect. There are still a few potential setbacks that you need to look out for. Some of those include:

  • Lack of asset liquidity
  • Pricing and transparency issues
  • Fees vary (i.e., you risk paying higher fees than usual, depending on the asset)
  • Platform risks
Alternative Investments: The Bottom Line

Obviously, no means of investing is perfect. Some methods will give you high returns, but if a single detail goes wrong, you might end up losing more money than you initially invested. Or at least you will lose your full investment. Nevertheless, I can’t recommend alternative investing enough. It’s a great way to diversify your portfolio and lower your overall risk. If possible, I suggest combining these investment methods with regular, public investing to achieve a better goal with even higher returns.

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