Alternative Investments

Most investors are familiar with the most 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 most investors, most of them would be invested in these three 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.

All of these alternative investments offer lots of investors greater diversification than they may be used to. While alternative investments should not make up the bulk of a portfolio, they can contribute to the growth of an investment portfolio even as a small holding.
Let’s take a look at a few of them.

Lending Club

The peer to peer lender Lending Club is an option for looking a return similar to junk bonds, but you take an active participation in investing. I’ve been a Lending Club investor for over two years now and started reviewing it 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. Also a guest post, from the Social Lending Network a blog, 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

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 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 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.