Alternative assets offer enormous opportunities for patient investors. These investments are not correlated with stock market returns and can continue to outperform even if the stock experiences a pullback, correction or enters a bear market.
However, you also don’t want to get stuck with the wrong alternative assets, as most of them are not as liquid as stocks. While you can trade your favorite stocks in seconds, it can take much longer — in some cases, months — to buy or sell an alternative asset, such as real estate. collectable or personal loan.
So if you’re wondering which alternative assets are worth considering, below are three top options discussed that have pleased investors so far.
Bitcoin
It’s hard to think of any alternative asset or stock that has outperformed Bitcoin over the past five years. While investors can choose from many cryptocurrencies, Bitcoin is the most trusted and prominent example of digital assets.
The world’s largest cryptocurrency has gained 1,200% over the past five years and last week, it Breaking past $100,000 For the first time this year.
Bitcoin’s returns may get a further boost from Crypto-friendly incoming Trump administration. The president-elect’s proposal to establish a strategic bitcoin reserve could prompt other countries to follow suit, and with many governments buying bitcoin, it would increase demand for the asset, fundamentally pushing up the price.
Even though Bitcoin has become a household name at this point, there is still a lot of potential for the crypto leader, as adoption rates are still growing. The digital currency has rallied 121% year-to-date, including a 40% increase in the month following the election.
Bitcoin has now surpassed silver as the eighth largest asset in the world, and at the time of writing, it boasts a market cap of $1.893 trillion – or more than 53% of the total market cap of all cryptocurrencies.
real estate
Real estate is another popular alternative asset that can generate high returns. Returns vary greatly depending on location, property type and many other factors. Although the amount of capital and time required may deter some investors, there are many methods Invest in real estate That can lower those barriers to entry. Examples include real estate investment trusts (REITs), real estate investment groups and crowdfunding real estate.
There are also exchange-traded funds (ETFs) that make this alternative asset more accessible. The Vanguard Real Estate ETF (VNQ), for example, has returned 9.48% annually over the past 15 years. However, this annual return does not offer the best view of how much you can earn with real estate.
As an asset class, real estate’s greatest strength is its ability to leverage mortgage. As long as investors continue to make predictable monthly payments, they can continue to acquire real estate. It’s more predictable and less risky than using margin to trade stocks, and it increases your potential returns.
For example, you can buy a $1 million property with just $30,000 if you qualify for a 3% down payment. If you want to survive Personal mortgage insuranceYou need to put down $200,000 for a 20% down payment.
The down payment and mortgage reflect your current investment, not the remaining mortgage balance. If you put $30,000 into a $1 million property and gross $10,000 in rental income a year, you’ve realized a 33% cash-on-cash return. Meanwhile, if you compare the rental income to the $1 million value of the property, it only shows up as a 1% return.
This is just an example, and your returns may look different depending on a number of factors. However, investors can gain a deeper appreciation for real estate’s total returns if they focus on cash-on-cash returns and take advantage of the tax benefits that come with property ownership.
the gold
Gold has stood the test of time. It has been a medium of exchange for thousands of years, and is more liquid than real estate. Besides, gold is easy to pick up and carry, but what about its annual returns?
The SPDR Gold Trust ETF (GLD) has delivered an annualized return of 7.8% over the past decade, but gains are increasing as Gold prices Continue to grow. Gold, A Physical propertyIt has an annualized return of 11.9% over the last five years and a three-year annualized return of 13.4%. It has increased by about 30% compared to last year.
Gold benefits from trends that hurt other investments, such as inflation and geopolitical unrest. Economic and global uncertainties can reduce the supply of gold as more individuals and governments Precious metal.
Gold prices may remain stable or gain ground during economic cycles resulting in difficulties for equity securities such as stocks. For example, during the bear market of 2022, gold remained relatively flat as the Nasdaq Composite fell 33%.
Diversify your portfolio with alternative assets
Each of these three alternative assets can help increase your net worth and provide greater diversification to your investment portfolio. Of the three, Bitcoin has been the top performer; However, it comes with significant risk and high volatility, making it a better option for this Young investors who have a long time to recover from a dramatic drop in price.
Real estate is a perennial investment that is always in demand. However, investors have to analyze additional parameters, such as area population growth, new amenities, rent growth, maintenance and appreciation – as well as depreciation over time. There is a lot more to investing in real estate, and it can take months to complete a transaction.
Gold is the least risky of the three options. As a store of value, precious crypto will not crash in 2018 and 2022, and is more liquid than real estate. The value of gold increases As inflation increases And interest rates go down. It also benefits from economic and geopolitical uncertainty, a feature that sets it apart from most asset classes.
Stocks can still provide attractive returns, and historically, they provide the strongest long-term gains. But for investors, diversification is a safeguard against too much concentration. Diversifying your capital across traditional and alternative assets can reduce your risk and open up more opportunities.
