10 Alternative Investments Outside of Stocks and Bonds


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An eternal optimist, Liu-Yue built two social enterprises to help make the world a better place. Liu-Yue co-founded Oxstones Investment Club a searchable content platform and business tools for knowledge sharing and financial education. Oxstones.com also provides investors with direct access to U.S. commercial real estate opportunities and other alternative investments. In addition, Liu-Yue also co-founded Cute Brands a cause-oriented character brand management and brand licensing company that creates social awareness on global issues and societal challenges through character creations. Prior to his entrepreneurial endeavors, Liu-Yue worked as an Executive Associate at M&T Bank in the Structured Real Estate Finance Group where he worked with senior management on multiple bank-wide risk management projects. He also had a dual role as a commercial banker advising UHNWIs and family offices on investments, credit, and banking needs while focused on residential CRE, infrastructure development, and affordable housing projects. Prior to M&T, he held a number of positions in Latin American equities and bonds investment groups at SBC Warburg Dillon Read (Swiss Bank), OFFITBANK (the wealth management division of Wachovia Bank), and in small cap equities at Steinberg Priest Capital Management (family office). Liu-Yue has an MBA specializing in investment management and strategy from Georgetown University and a Bachelor of Science in Finance and Marketing from Stern School of Business at NYU. He also completed graduate studies in international management at the University of Oxford, Trinity College.

By Jon C. Ogg, 247WallSt,

Investors in 2016 have to be scratching their heads when it comes to where to invest. The trend has been set for years now that investing in Treasury notes and bonds has generated too little yield to live off of, and forget about certificates of deposit (CDs), as quantitative easing and easy money have kept interest rates extremely low. All those worries over high market valuations, Brexit, political uncertainty, terrorism, weak economy, strong dollar and on and on. And somehow U.S. stocks are at all-time highs. This begs the question: How is anyone supposed to invest their money to make any money now?

Maybe it’s time for investors and savers to consider alternatives outside of the traditional assets like stocks and bonds. Some alternatives to traditional investing can be quite safe. Others can be quite risky, or they can bring many complications.

Here 24/7 Wall St. outlines 10 alternative investing strategies in which the public can invest in most economic conditions. Some of these, but not all, may even be able to be used in 401(k) and IRA retirement accounts. Others may seem more like jobs than investments. What should be considered here is that not all alternative investing strategies are appropriate for every investor.

Let’s just assume that you need an extra $40,000 income per year on top of your retirement or social security income. Or let’s just say you are a tinkerer more than a career person. That would make cash flow and/or income extremely important. If you already have millions of dollars, then longer-term growth and value may matter more than needing income today. Every form of alternative investing comes with risks. Whether it is Wall Street or Main Street, the reality about money and investing is that there is just no such thing as a free lunch.

While Treasuries and CDs were named, we are also not including bonds from corporations, federal agencies, states and municipalities as alternatives. Those are of course alternatives, but they are quite common ones and they will be featured another time.

Also included here are at least some of the pitfalls and risks that must be considered in each individual asset class. One theme that will be evident here is the timing and liquidity of an asset. You can buy or sell stocks or most bonds in a few seconds with limited effort, but you can spend years or have to pay penalties or fees to exit many alternative investments.

Here are 10 alternative investment strategies for the public.

1. Property and Real Estate

Have you ever heard of the notion that they are not making any more land? More or less, that is true. Investing in all forms of land or real estate has helped make many millionaires and billionaires. Some land investors also would never dream of buying stocks or bonds because they have done so well. Whether you are a landlord for a house, apartment or business, the goals are generally to get ongoing income and having your tenants pay off the mortgage or note through time. Outside of traditional land, there is also timberland, farming, hunting leases and many other uses.

Cons on land and real estate need to weighed. First and foremost, you generally have to already have a lot of money to buy most land and real estate. Land and real estate can be rather illiquid and can take years to sell. They can also sit vacant or unimproved for many years. Land owners also have to pay property taxes and often have to pay for improvements or maintenance, or they need to keep insurance, all of which can add up quickly and over time.

2. Annuities

If you want to get as wide of a range of reactions as you can imagine, go ask people who invest money or who have assets what they think about annuities. Generally speaking, annuities are supposed to be relatively safe cash flow payments made annually. They also may be used for asset protection strategies, and that may fall way outside of just looking for gains or income. Annuities come in many styles, ranging from immediate to deferred, and they can be fixed annuities or variable annuities — with many variations in each. Investors often use annuities to help with cash flow needs, and they are often more than willing to sacrifice upside for the assurances and safety of principal.

The risks of annuities are numerous, and this will only scratch the surface. There can still be issuer credit risk, like default. There are limits to how much an annuity is insured for, generally considered to be $250,000 or $300,000. There can be and often are suitability issues. Some annuities can have such high fees and commissions that they look like they were built just for salespeople who enjoy high commissions. Other investors think annuities are just there to rip off unsuspecting investors. Many people do not fully understand annuities, even those who purchased them. If they have annuities with index ties, they often feel left out if the market rises 20% and they make only 5%.

3. Private Companies and Operating Businesses

Millions of Americans own small businesses. Most tend to be in services, but they can be manufacturing businesses as well. There are many business brokers out there, but many businesses get bought and sold directly via friends or family. The point is that you can own one private company or many private companies. You can own a gas station, convenience store, small hotel, lawn or pool care service, car wash, widget manufacturing company, book-keeping and records-keeping company, and on and on. Many people who buy private companies prefer to buy a franchise because it is proven, has a turnkey plan and hopefully can be sold down the road easier than most companies. These also can be considered “cash cows” because they kick off so much income to the owners.

The risks of investing in private companies and other operating companies are numerous. They may take years to sell again or they might never be able to be sold. Another pitfall is that sometimes (or always) you will have to be the proprietor in charge of running that business each day. Many businesses also have a lot of ties to the founder or prior owner, so someone else coming along later (that may be you!) might not have the ease of running and dealing with customers as would have normally been the case. Then there is the risk of people (labor) and operating costs, all of which can rise handily ahead. Paperwork, taxes and regulation often scare off what might have otherwise been passive business owners.

4. Art and Collectibles

Chances are pretty high that you heard of millions of dollars being spent on Picasso and Van Gogh paintings. Rare antiques and artifacts can sell for huge amounts. Ditto for the famed Honus Wagner baseball card that is so scarce and so sought after. What about the first Superman comic book, or what about manuscripts and autographs? Then there are stamps and rare coins to consider. All these fall under the arts and collectibles, and they are generally bought and sold by people who already have lots of money.

One of the biggest risks of art and collectibles is that beauty is in the eye of the beholder, and if you own it you may have been willing to pay more than anyone else at that time. Art and collectibles can be illiquid. Many unknowing investors also have been duped by fakes, replicas and forgeries sold as “the real deal on the cheap.” Knowing the pedigree is important as well — if it is stolen or if someone was swindled out of it, they might come after you for it. Collectibles as an asset class also generally are taxed at a higher 28% rate for the profit upon the sale.

5. Royalty Income Streams

Many individuals own streams of royalty income. In modern days, people might immediately think of royalty payments tied to oil and gas. The reality is that there are many royalties that can be invested in. You can invest in royalty payments tied to gold mining, music, patents or copyright, or even in films and TV. Some investors have even bought royalties tied to clothing lines. Another new royalty stream investment that is available is investing in the rights to future income of athletes. There are exchanges and venues for people to buy and sell royalties.

Perhaps it sounds great owning royalties. They can be very lucrative, but they can also be duds. Many athletes, musicians, brands, oil wells and the like simply fizzle out or die. Some royalties often just suffer from a slack economy, or the future sales do not live up to expectations. Another risk is that there can be legal disputes over what were the real sales or the real income levels that were as the base for royalties.

6. Gold and Silver

The price of gold and silver has risen sharply through time, and it often falls faster than it rose. Still, gold has a history that goes back for thousands of years. The shiny yellow metal has been sought after since the dawn of time. Gold is also a key holding of central banks, and probably every wealthy person in the world has been told repeatedly that they have to own some gold. It easily can be bought and sold now in the financial markets, online or at gold exchange stores. Some gold bugs invest in gold as a future store of value, or because they fear a coming collapse of the monetary system. There are too many reasons to say why someone might own gold. This is the same issue for silver, with even more variations.

Gold does come with risks that you might not normally think about. The numerous reasons people own gold actually make up some of the risks. Industry and technology keep finding new replacements that are far cheaper than gold. When gold gets too expensive, they use less gold in making jewelry. Gold (and silver) will never pay a dividend, and you can’t eat gold if you get hungry or drink it if you get thirsty. Gold and silver also get taxed at the same rate as collectibles, so you generally have to pay 28% on your profits. If the rationale behind gold buying was for barter, whoever is bartering with you may not value that gold very highly or they may bilk you. Then there is the risk of theft or loss.

7. General Stuff: Garage Sales and Estate Sales

It might not seem realistic that people could just drive to garage sales and estate sales to make an investment. Reality is different. Many sellers just want to get rid of family “stuff and junk,” but quite often there are major scores because people do not know what they are selling. This is where people can buy furniture, collectibles, clothes, art and just about anything else in a house at prices that can sometimes be at pennies on the dollar. If you ask antique store owners how they find so many of their items that have been hidden away from the public, one of the sources of so much is via estate sales. You too can do this, and you can sell from your home via eBay, Amazon or Craig’s List. You can often sell those items to stores or dealers. The general term for this is now being a “picker” (just like the TV show “American Pickers”) and it can be quite profitable if you know what you are doing or get incredibly lucky.

There are many risks in buying from estate sales or garage sales. Someone down the road could claim that the item was stolen. If you are not paying close attention to what you buy and sell, you could be buying and selling something different from what you thought it was. There are also many fakes and replica items that get bought and sold, often without the buyer or seller ever knowing it. And back to beauty is in the eye of the beholder: you might think something is worth $1,000 when most people wouldn’t want it if you paid them to take it. There is also a risk that your buyer tries to back out or wants to return the item or dispute the transaction. No free lunch here.

8. Private Loans

Some shrewd people take the route of making private loans. These can be made to individuals or they can be made to a business. This can be quite lucrative, particularly if the loan is made to people or businesses that have ample assets or cash flow but with limited credit or bad credit history. You might also be make 8%, 10% or more, and in some cases you might even ask that the loan has a convertible feature or comes with an upside under certain circumstances.

There are risks in making private loans. First and foremost, you might have a hard time collecting interest and getting paid back your principal. Being a private lender also can damage relationships with friends or family. Collecting money from your kids or best friend is not fun, and it can create friction or even fights. Another risk is that if your business or friend runs into financial or tax problems ahead, the IRS or other creditors may demand that money as they had a higher standing in line. Another risk that lenders have to consider is when usury law comes into play. It could come with big fines (or worse).

9. Private Equity and Hedge Funds

Many wealthy Americans invest in hedge funds and private equity funds. These are expected to generate returns via income and gains through time. Many funds of this sort have very specific targets or asset classes, while others just look for opportunities regardless of where they are. Or the fund groups may just turn around and invest in stocks and bonds. Generally, except for long-only funds, hedge fund investors are looking for absolute returns, even if it is by profiting from downside. Private equity investors are usually looking for above-market returns through time or they are looking for income and/or long-term gains that are not correlated to the markets.

Even hedge funds and private equity funds managed by very sophisticated and smart investors come with risks. If investors want their money back, it can be locked up for months or years. If the money is paid back, future investors may demand claw backs so that you have to share your proceeds with a larger pool, like in the case of the Madoff scandal. Speaking of Madoff, it seems amazing or impossible but there are still many scams and financial shenanigans that can take place, between management fees, operating fees and net performance fees. Another risk in funds like these is that many investors do not even know how their money is being invested for quite some time.

10. Cash

Most investors forget that cash is an asset class in and of itself. It can be cash in the bank, it can be in a lock box or it can be cash in a money-market account at a brokerage firm. The phrase “cash is king” comes to mind, because you can spend it for what you need to buy or you can save it for a rainy day. Most rich people and those with wealth tend to have cash in an account or on hand — who wants to be called “cash poor” despite being wealthy? There are other alternatives now to just cash. You can hold foreign currencies, or you can even go the crypto-cash route like Bitcoin.

Cash is not immune from risk, and modern times have proven that in a new method. Cash’s value is what the value says it is on the face, but consumer prices fluctuate through time and inflation bites into cash’s relative value as well. The other side of the coin is that negative interest rates in much of the world mean that cash held in a bank account actually loses a small amount of money. Cash can be stolen, and cash is hard to claim as a loss because it is so hard to prove. Physical cash can also get lost, or it can be destroyed or burned. Again, good luck getting that back.

10 Alternative Investments Outside of Stocks and Bonds

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