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How to Buy Alternative Investments

Learn what it takes to invest in alternative assets
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For those striving for added diversification, potentially strong returns, and less correlation with traditional stocks and bonds, alternative investing might be for you. These types of assets include commodities, real estate, crypto, art, wine, and more. Formerly the purview of wealthy, accredited investors, today anyone can access alternative investing opportunities through crowdfunding platforms and funds. Keep in mind that in exchange for the promise of added diversification and high returns, you’ll need to accept limited liquidity in many cases. Read on for an alternative investing how-to guide. 

What Is Alternative Investing?

Interest and opportunities for alternative investing have exploded since the 2008 recession, stock market decline, and mortgage market meltdown. As traditional markets tumbled, investors were hungry for investments with a negative correlation to traditional stocks and bonds. Alternative investments typically gain popularity during periods of heightened equity market volatility and economic weakness.

Alternative investment vehicles encompass assets outside of typical stock and bond markets. Previously available only to the ultra-wealthy, today opportunities are accessible for smaller investors as well.
Examples of alternative investment vehicles include:
  • Gold and silver
  • Art
  • Wine
  • Real estate
  • Hedge funds
  • Private equity
  • Cryptocurrency
  • Private and distressed debt
Millennials and newer investors have embraced alternatives as popular celebrities like Matt Damon and Reese Witherspoon tout their benefits. You can easily access alternative investments through crowdfunding apps such as and . Private funds, publicly traded real estate investment trusts or REITs, and managed ETFs also open the door to alternative investing opportunities. 

Alternative Investments vs Stocks

Most investors are aware of the return potential of investing in individual stocks or stock market ETFs and mutual funds. Over the past hundred years or so, the U.S. stock market delivered a 9+% average annual return. But that return also included occasional years of double digit declines, like the -18.01% drop in 2022 and the -36.55% crash in 2008. Along with the potential for strong performance, easy access, and liquidity, investing in the stock market is a core asset class for long term investors.

Investors continue to seek out alternatives to investing in stocks, as well as assets that are lesscorrelated with the stock market. This adds to the demand for alternative investing. Depending upon the alternative investment vehicle, average returns will vary from a low of 5.0% for a debt fund to a double digit return for some real estate partnerships and other niche alternative investment products.

Alternative investments and stocks have some major differences:
Key Differences Between Stocks and Alternative Investments
 Stocks  Alternatives
Liquidity Extremely liquid; can trade throughout the day. Many have lock-up periods which tie up your money for periods from several months to several years
Fees Fee-free trading with most brokerages; most ETFs and mutual funds charge less than a 1.0% expense ratio  Fee structures range from simple to quite complex; a few platforms provide low-fee alternative investments, while others have complex fee structures including performance-based add-on fees 
Minimum investment  Fractional stock and ETF shares can be bought on multiple investment platforms for as little as $10  Platforms are available for both accredited and non-accredited investors; minimum investment amounts range from a low of $10  to four to five figures. 
Correlation  Stocks exhibit distinct correlations among specific sectors and geographic regions. Lower correlations between assets lead to more price stability within your investments. Alternatives will also have correlations within themselves and won’t always move in lockstep. The correlation between stocks and alternatives will depend upon the time period and specific alternative investment vehicle.
Adding alternatives to a diversified stock and bond portfolio has the possibility of minimizing volatility and potentially bolstering returns. Remember that there are no guarantees in investing. 

How to Buy Alternative Investments 

How to buy alternative investments will vary based upon the platform and type of assets. If you buy an alternative ETF or mutual fund, you’ll need to open an investment brokerage account. If you’re buying alternatives via a stand alone firm like Cadre, Peer Street, Realty Mogul, or Arrived, you’ll follow the “set up an account” guidelines. 

Sample process to buy alternative investments:
  1. Sign up for an account: Sign up for a reputable alternative investing platform, such as , Yieldstreet, and , and create an account. During this step, you’ll be required to verify your identity via a government-issued ID. 
  2. Link a bank account for fund transfers and confirm payment details: The next step is to link a payment method to your account. This allows you to add funds in order to purchase alternative investments. Different exchanges may accept different payment methods; it's important that you check what is accepted by the exchange in your jurisdiction. 
  3. Select investment and transfer funds: From the available investment choices, choose the asset or assets that you want to invest in. Indicate the number of shares and type of investment. Next, there will be a prompt to transfer the funds, from your previously linked bank account. If the investment doesn’t use all of your transferred money, the excess will remain as a cash balance in your account for further investment opportunities. 

Some alternative investment offers are for specially qualified or accredited investors, while others are available for all. If the platform is exclusively for accredited investors, you’ll need to provide proof that you meet the accreditation standard.

Accreditation criteria:
  • Net worth over $1 million, excluding primary residence (individually or with spouse or partner)
  • Income over $200,000 for individuals or $300,000 jointly in each of the prior two years, and reasonably expects the same for the current year
  • Knowledgeable investment professional
If you’re wondering how to invest in art or how to invest in wine, there are various options. The simplest way to invest in art, wine and specific high-end collectibles is through a crowdfunding app like Yieldstreet or . Otherwise, you can buy and sell through specialty dealers or at auctions.
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Source: Masterworks.

What You Need to Open an Alternative Investing Account 

You’ll need information to verify your personal data and financial status, if you’re investing on an “accredited investors only” platform. 

Personal Information

All platforms require investors to open an account and provide basic personal information such as:
  • Full name
  • Email address
  • Phone number
  • Home address
  • Proof of address
  • Social Security number
  • Government-issued ID
  • Banking information
Accredited investors might need to provide additional bank or tax statements to verify eligibility.

Minimum Deposits

Minimum deposits range from as low as $10 to $20,000 or more. Some platforms have a distinct minimum for each specific project. For example, FarmTogether, limited to accredited investors only, has crowdfunding offers starting at $15,000 and a Sustainable Farmland Fund that requires a $100,000 minimum.

If you’re investing in an alternative ETF or mutual fund, you’ll typically find reasonable minimums. Fractional shares of a REIT or commodity ETF can be purchased at Fidelity and other investment firms for as little as a few dollars. 

Best Alternative Investing Platforms

Company Focus Minimum Investment
Real Estate Investments $10
Art Investments $15,000
Yieldstreet Asset Variety $5,000
Gold and Cryptocurrency $1,000

How to Gain Exposure to Alternative Investments Through ETFs

ETFs or exchangetraded funds are available to all investors, accredited and non-accredited. Alternative ETFs come in a multitude of varieties including merger, arbitrage, risk parity, crypto, metals, real estate, multi-asset, and commodity. You can purchase ETFs at traditional investment brokerage firms like Fidelity, Schwab, Vanguard, and E*TRADE. Many of the investing apps, like M1 Finance, Robinhood, Webull, and Public, also provide access to ETFs.
Sample alternative ETFs include:
  • Return Stacked Bonds and Managed Futures ETF (RSBT)
  • Timothy Plan Market Neutral ETF (TPMN)
  • Noble Absolute Return ETF (NOPE)
  • RPAR Risk Parity ETF (RPAR)
  • ProShares Merger ETF (MRGR)
  • Bitcoin Strategy ETf (BITO)
  • iShares S&P GSCI Commodity-Indexed Trust (GSG)
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Source: Crowdstreet.

What Are the Advantages of Alternative Investments?

The promise of lower correlations with stocks and bonds is a major draw of alternative investing. Pension funds and institutional investors have included alternatives in their arsenal for years. Yet, lumping all alternatives into one group might be cavalier. Keep in mind that within the broad category, there are a range of investment types. Some alternatives, like commodities, can provide a hedge against price inflation and protect your capital as prices soar. Investments that are negatively correlated with stocks and bonds can bolster your financial assets when traditional investment values tumble. Certain alternative investments, like hedge funds and private real estate deals, provide the possibility of higher returns and lower correlations with traditional assets. 
If you are seeking diversification beyond traditional stocks and bonds, then alternatives open up an avenue with a possibility of higher overall returns and lower volatility. Today, all investors have access to alternatives, although some would argue that the best deals are reserved for high-net-worth accredited investors.  

What Are the Disadvantages of Alternative Investments?

The promise of higher returns and reduced investment portfolio volatility is a possibility, not a certainty. Some private alternative investment vehicles are not SEC regulated, adding to their risk. Higher risk of loss accompanies the promise of higher returns. Some alternative investment founders lack the expertise and training that you’ll find in the managers of most highly regulated mutual and exchange traded funds. With alternative investing, you might encounter uncommon tax reporting, causing additional tax preparation headaches. 

Many alternative investments have long lock-up periods and are illiquid. That means you may not recoup your initial investment for a period of months or years. Some of the best deals are only open to accredited investors. Fees for alternative investments can also be excessive. While ETFs and mutual funds typically charge less than a 1% expense ratio, some private alternative offers levy high expense ratios and additional performance-based fees. Another disadvantage of alternative investments is lack of income. Unlike bonds and many stocks, commodities, precious metals, art, wine and other alts don’t offer any cash flow. 

What You Need to Know About Secondary Markets

To counteract lack of liquidity, many alternative investments offer secondary markets. Secondary markets are avenues to buy or resell an asset that was bought or sold during the original offer. Conversely, a primary market is the platform where you can buy a new offer. It might be a stock initial public offering (IPO) or a crowdfunding real estate platform where you buy a share of real property from the original owner. 

Most stocks and bonds are liquid and readily bought and sold through public exchanges, which are secondary markets. Several alternative investment platforms offer their own marketplaces or secondary markets, where sellers can locate interested buyers for less liquid investments. Before investing in any alternative asset, it's useful to understand the liquidity of the product.  

What to Consider When Investing in Alternative Assets  

Objectives

Many advisors suggest giving your money a job. When investing, begin with a plan that includes:
  • Goal for the money
  • When you will need it
  • How much risk you can accept
After defining your goals, timeline, and risk level, you’re ready to create an investment portfolio and decide whether to add alternative investments to your stock and bond holdings. If you seek the added diversification and return potential of alternatives, and can accept the risk and liquidity parameters, then you might add this asset class to your stock and bond investments. Typically, diversification principals suggest maintaining a smaller proportion of alternative investments within a diversified portfolio. 
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Source: Yieldstreet.

Liquidity 

Only invest money in the financial markets that you don’t need within the next three to five years. This goes for alternatives, stocks and bonds. While stocks and bonds are liquid and can be rapidly sold, many alternative investments require a few months to many years before redemption.

When investing in alternatives, understand the liquidity options for the investment. Private investments for accredited, wealthier investors might require five- to six-figure minimums and lock-up periods up to 10 years. Before purchase, determine if there is a secondary market for the investment and whether you can accept the expected lock-up period

Setting Your Time Horizon

Understand your money’s job. Is it capital appreciation for the long term, cash flow and appreciation, or stable value and liquidity for short term goals? Any money that you will need for an upcoming vacation, down payment on a home next year, or for emergency cash probably shouldn’t be in an alternative asset. These types of investments are usually difficult to liquidate. 
After you’re clear on your financial goals and when you’ll need the money, you can decide if a particular alternative investment is right for you. Read the investment’s fine print and match your time horizon for the money with estimated lock-up periods for your alternative investments. In general, plan to own alternatives for the long term.

Building a Diversified Portfolio 

Building a diversified portfolio begins with determining your goals, timeline, and risk tolerance. Your assessment of those factors will determine whether to create a conservative portfolio, if you’re less risk tolerant and have a shorter timeline, or a more aggressive investment mix, if you’re younger and can tolerate more price volatility within your investments. In general, conservative investment portfolios contain greater percentages of fixed income bonds and cash, and less allotment to riskier stocks. The opposite applies to more aggressive portfolios. 

Any investment portfolio might include a small allocation to alternatives, which will be included within the riskier portion. Generally, it’s recommended to maintain less than 10% of your liquid assets in the riskiest assets, like alternatives. Returns and portfolio volatility are inversely correlated with the level of risk within the portfolio. Higher risk portfolios might achieve higher returns, with greater volatility. Conversely, expect lower returns and volatility from more conservative portfolios.

FAQs

What Are Alternative Investments?

Alternative investments span a wide variety of assets beyond traditional stocks and bonds.

Alternative investment choices include any investment apart from individual stocks and bonds, stock and bond funds, and cash assets like CDs or money market funds. Examples of alternative investments include real estate investments, commodities, currencies, hedge funds, and various other unique assets.  

What Are the Most Popular Forms of Alternative Investment?

With the recent launching of crowdfunding alternative investing apps, there are multiple choices for alternative asset enthusiasts. 

If you’re wondering how to invest outside of stocks, here is a sample of alternative investment ideas:
  • Commodities
  • Real estate: REITs, private, crowdfunding
  • Metals - including gold and silver
  • Art 
  • Wine
  • Private debt
  • Hedge funds
  • Cryptocurrency
  • Farmland
  • Currencies
  • Private equity
  • Startups

Should I Buy Alternative investments?

You can have a sufficiently diversified investment portfolio without alternatives. Whether you should buy alternative investments depends upon your financial goals, risk tolerance, and timeline. There are several reasons why you might buy alternatives:

  • You want an opportunity to invest like the institutions and the wealthy.
  • You can tolerate a certain degree of risk.
  • You don’t need the money soon.
  • You’re seeking the opportunity for greater returns.
  • You desire additional diversification in your investments.
Ultimately, only you can decide whether you should buy alternative investments or not.
Article Sources
Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy.
  1. NYU, Stern Business College. "." 
  2. U.S. Securities and Exchange Commission. "."
  3. FarmTogether. "."
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