Today investments come in all shapes and sizes. While stocks and bonds still make up the bulk of most portfolios there are now a number of alternative investments individuals can make. Furthermore these investments don’t need to be motivated by greed at all. In fact there are a number of ways you can do well for yourself while doing good for others.
What are alternative investments?
A better question might be “an alternative to what?” In this case the answer is stocks and bonds. Whether you have a 401(k), IRA, or some other type of retirement account chances are your money is only invested in those two investment buckets. Alternative investments offer ways to expand your portfolio by placing your money elsewhere.
Some common alternatives include hedge funds, commodities, or even real estate — basically anything that isn’t a stock, a bond, or a cash security. While it’s not always the case, many alternative investments provide less liquidity than stocks or bonds, which can be cashed out at almost any time. As a result these types of investments are long-term plays and should be treated as such.
So what are the benefits of alternative investments then? For one it provides your portfolio some diversification, which could be helpful during turbulent and volatile market years. However, like any investment, alternatives carry their own levels of risk that you will need to research and consider, especially if you’re nearing your target retirement date.
Many financial advisors recommend that alternative investments will only make up a small percentage — often less than 8% — of most portfolios with the rest comprised of stocks and bonds of various levels of risk.
Ideas worth investing in
For decades now scientists, engineers, and politicians alike have all taken an interest in climate change. As a result a number of companies have proposed a variety of innovations as potential solutions to the problem. Many of these firms focus on lowering carbon emissions and creating what’s called green energy (as in energy that doesn’t harm the environment). This has led to the emergence of “green bonds.”
These special types of bonds can go towards funding a number of environmentally-friendly and sustainable projects, giving investors peace of mind in addition to a piece of the pie. With more and more Americans becoming environmentally conscious green bonds are growing in popularity. Because of this, issuances of green bonds have grown tremendously in recent years. In fact Business Insider reports that, in the first half of 2016, $21.7 billion in green bonds were issued compared to only $12.1 billion issued through the same point in 2015.
Another way you can help invest in innovation — both in the green technology field and beyond — is with equity crowdfunding. If you’re ever watched an episode of ABC’s Shark Tank you likely understand the basic idea behind investing in companies: you offer a certain amount of capital in exchange for a percentage of the business. While this has traditionally been reserved for only the wealthy and well connected, equity crowdfunding allows laymen to invest in companies in a manner similar to how Kickstarter helps fund film projects and inventions.
Sites like SeedInvest and others enable investors to browse through a catalog of companies looking for funding. In addition to a summary of what the company does and what they’re hoping to accomplish these listings will also include a valuation for the company, what security type their offering (preferred equity, convertible note, etc.), and other pertinent business information. Qualified investors — a category that’s grown much larger following the passage of the JOBS Act — can decide how much they’d like to contribute. The company and amount you choose is completely up to you so feel free to support businesses that will make a difference in the world.
Giving a helping hand (and making money)
The growth of the FinTech sector over the past decade or so has brought more alternative investment opportunities with it. This includes what are known as peer to peer lending platforms, of which Lending Club is the largest. These sites enable you to lend money to those in need of a loan and, in return, get a cut of the interest.
Lending Club reports that 68% of their borrowers are using their funds to consolidate their credit card debt. However other borrowing reasons include weddings, medical bills, home improvements, and more.
Additionally the site allows you to see what the person intends to use the loan for, what their credit has been rated at by the platform, what interest rate the loan will carry, and the terms of the loan. From there you can contribute as little as $25 to any individual loan. With such small lending commitments it is easy to diversify your lending portfolio, which helps to offset your risk should someone default on their loan.
What’s great about peer to peer and marketplace lenders is that you can have a direct impact on someone’s life. Often times a personal loan will help them to save money versus credit cards and set them on the road towards becoming debt free. Plus you get to help improve your own finances making it a win-win.
For the completely altruistic
When people speak about investing, they typically mean dollars and cents. However philanthropy can have its own benefits that can’t be quantified monetarily. In that aspect donating to charities you believe in and that make a difference in people’s lives can be a great personal investment.
Another option is to give your money directly to those who need it. Kiva is a micro-loan platform whose goal is to help those in developing nations (and here at home) by providing them the funds necessary to jump-start their own businesses or other endeavors that will allow them to support themselves. With the tagline “loans that change lives,” former president Bill Clinton is among many who believe in the power of the site. Currently Kiva offers loans to people in 82 counties and a total of nearly $900 million has been lent through the platform. Impressively their repayment rate is 97.2%, allowing many lenders to continually help others without investing a fortune.
Today there is no shortage of alternative investments you can make. Additionally, with self-directed IRAs, you can choose to put your retirement savings into whatever types of investments you choose. Because of this you can decide to use your money to help save the environment, fund great companies and ideas, or help those in need and still make money in the process. Now doesn’t that feel good?