Alternative Investments

Most investors are familiar with the common asset classes in the market place today. Stocks, bonds, ETF, and mutual funds are the traditional assets that most investors have heard about. They are recommended by websites, magazines, and financial professionals. If you checked the retirement accounts of the typical investor, most of them would be invested in these four assets classes or holding cash. While these asset classes are important, there are other investment options available to investors that they may be overlooking.

In the current interest rate environment, returns on most fixed income returns are awful. Investors are looking for returns in other investments, and I always consider my 4% rule to investing when deciding on the investments I choose.

These alternative investments offer investors greater diversification than they may be used to. While alternative investments should not make up the bulk of one’s portfolio, even as a small holding, they can contribute to significant growth. They can, however, be risker investments than bank CD’s or U.S. Treasuries. Let’s take a look at each investment option.

Lending Club

The peer to peer lender Lending Club is an option for someone looking for returns similar to junk bonds, but you take an active participation in investing. I’ve been a Lending Club investor for over three years now and started using them in mid 2009. The returns are higher than other types of fixed income investments currently, offers stable income, and allows you to manage your risk.

See my post “Is Lending Club No Longer a Good Investment” defending Lending Club’s change in their allowed questions to borrowers.

Prosper

Another peer to peer lender option is Prosper. I just started investing with them. Previously I was reluctant because of their poor performance history. If you read my review, you will see they’ve changed their underwriting process and now are much more like Lending Club.

Just like my Lending Club quarterly updates, I’ll be transparent with my results. I’ll also give any tips that have helped improve my performance.

Also check out my post giving a fair comparison of Lending Club vs. Prosper.

Master Limited Partnership (MLP)

MLP is a not often discussed investment option that generates 7-8% annual returns. They also have great tax benefits and are perfect for taxable accounts. I discuss what is a Master Limited Partnership (MLP) in one of my first posts.

Ginnie Mae Bonds

This is another not often discussed bond that offers stable returns that are government insurance, yet offer higher rates than treasuries.  I discuss Ginnie Mae investing and that it might be a suitable alternative to other government issued debt.

REITs

Real estate investment trusts are an alternative method to invest in real estate. So instead of purchasing a residential property, you can purchase a REIT which invests in apartment complexes. REITs aren’t tax efficient, so they are best placed within a tax differed account. For more information, please read:

Buying Gold

Gold isn’t exactly an investment – it’s a hedge against inflation, uncertain market and quantitative easing.  I review APMEX and it is the primary vendor I use when buying gold online.

Buying Silver

Compared to gold, silver is not often talked about. Silver is much cheaper than gold and has industrial uses. So when the economy improves, often silver increases in price. I discuss buying silver online and again recommend using APMEX.