Not that investing in the stock market isn’t a great way to build wealth, but there are also other ways. Alternative investments can be a smart way to diversify your portfolio — some may hold steady returns, whereas some can even beat the market.
In case you don’t know, alternative investments are any securities aside from cash, stocks and bonds. In most cases they’re not regulated by the U.S. Securities and Exchange Commission (SEC) but have the potential to earn high returns for the investor.
That’s not to say that any of the following alternative investments currently and will beat the market. Fergus Hodgson, director of Econ Americas, an investment research firm, said it’s hard to directly compare results from market indexes like the S&P 500.
“Each alternative investment will need its own research in order to figure out what the investor’s needs are,” he said. “In my experience, many are suited to help investors with inflation protection and diversification.”
It’s important to do your own research to see what these investments may have helped investors earn in the past, what it takes to get started and the type of volatility you may experience. A common saying is don’t invest in what you don’t know — risking your hard-earned money without some insight is probably not your best bet.
Here are some alternative investments to consider.
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Purchasing Land
If you have a lot of upfront money and time to do a lot of market research, purchasing raw land can be a great long-term investment.
Cody Bjugan, real estate developer and founder of Allied Development and VestRight, said there is a lot of potential in this space.
“Purchasing land with development potential is one of the most profitable and least understood strategies in real estate,” he said. “It’s not the easiest way to acquire wealth, there’s so much opportunity for how you can grow it using land.”
For example, you can lease the land to developers, build properties ourself and rent it out, harvest it for timber or raw goods and even sell it for a profit eventually.
Hedge Funds
Hedge funds that pools funds from different investors together and invests in different assets like real estate or private companies. You need to be an accredited investor — have at least $200,000 in income for individuals or a net worth of at least $1 million, not including your primary residence.
The reason hedge funds may beat the market is because securities held inside these funds don’t track a market index like the S&P 500. These funds are generally not available to the public, which means you’ll need to have a good network of people who can introduce you to hedge fund managers.
Collectibles
Investing in collectibles are where you purchase items that are considered valuable and have the potential to appreciate in value over time. Some of these include rare coins, memorabilia, fine wine, vintage toys and comic books.
You do have to have a lot of upfront cash in order to purchase these types of collectibles and find a way to store them securely. Plus, doing your research is key so you can ensure that what you purchase is authentic.
Private Equity
It’s possible to invest in private companies and startups and receive returns either through a company’s increase in value or the dividends you receive. Each company may offer different benefits — it’s up to you to decide what you want.
Eric Satz, founder and CEO of Alto, a company helping investors open self-directed IRAs to invest in alternative investments, suggests researching platforms that have opportunities in private equity since you can’t invest these within the stock market.
“A few areas that I can see ‘beating’ the market in a few years are credit investing, software and AI and cryptocurrency companies,” he said. “You’ll want to research different self-directed IRA options, particularly the account pricing and customer support model.”
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This article originally appeared on GOBankingRates.com: Experts: Do You Know Which Alternative Investments Are Beating the Market?
