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When it comes to investing, most people turn to the stock market.
And this is for good reason.
It is a good place to earn a higher return on your money than keeping in a savings account or even under your mattress.
But not everyone is made for investing in the stock market.
Some people want alternatives.
Luckily there are many alternative investments you can invest your money in.
The problem is there are a lot of scams out there.
In this post, I’ll walk you through 11 legit alternative investments that you feel confident investing your money in.
This doesn’t mean you remove the risk of losing money, as you can lose money on any investment.
But these are actual investments and not some shady scam looking to trick you into giving away all your money.
11 Alternative Investment Options To Invest In
What Are Alternative Investments?
Before we begin, we need to define what alternative investments are.
In the basic sense, they are any investment other than stocks, bonds, or cash.
So anything else you invest your money in is considered this type of investment.
For example, you could invest in real estate, golf courses, restaurants, cryptocurrency and more.
The benefit of these investments is they are not related to the stock market.
What this means is the stock market may crash, but these investments grow in value.
Because of this, many large institutions will invest a small percent of their money into alternative investments.
The drawback to these investments is they are unregulated.
You have probably heard of Bernie Madoff and other investment advisors scamming clients out of their life savings.
This was done in a regulated market.
You don’t hear about what happens to unregulated investments simply because they are not main stream.
This isn’t to say you should completely avoid these investments, but you need to know what you are investing in before you hand over your money.
Now that you know the basics of alternative investing, let’s look at some popular ideas to consider.
#1. Master Limited Partnerships
Master limited partnerships, commonly called MLPs, are kind of hard to explain.
It’s basically a hybrid legal structure that has tax advantages to its owners.
You would typically find MLPs in the energy sector.
For example, the oil boom has pushed MLPs toward the mainstream due to their higher than average dividend payments.
You can find and buy them on public markets and they’re an income generator.
However, instead of a 1099-DIV, you receive a Schedule K-1.
This schedule is sent to investors usually in May, so you will first have to file an extension on your income taxes.
They are also very complicated for tax professionals to work with and many charge investors a higher tax prep fee because of them.
While getting a larger dividend is a benefit, the hassles of investing in MLPs isn’t worth it to me.
You could build a stable dividend portfolio, earn a yield of 4% with a little work, and not have to deal with the K1.
#2. Cell Phone Towers
In order for cell phone companies to offer great coverage, they need to install cell phone towers.
Many people might think that in this day and age, companies are not adding new towers to their networks.
But this is not true.
Not only do towers need to be replaced, but new towers go up all the time.
There are still many “dead zones” in rural areas.
And with the introduction of 5G, more towers are needed as the 5G signal doesn’t extend as far from the tower.
So how can you make money with cell phone towers?
If you’re lucky enough to have land in key places, you may be approached by a cell phone carrier.
Cell phone carriers want to lease your land and put up a tower.
In some cases, a lease can be worth $1,500 to $2,500 per month and possibly more.
Leasing your land to a cell phone carrier isn’t something everyone can do.
To even get started, you need to own a bunch of land.
Plus you have to consider the fact that you will have a huge tower in your yard.
But it is an easy way to earn passive income every month.
#3. Real Estate Investment Trusts
If you’re an income investor, you might already be familiar with REITs.
Basically, an REIT is focused on real estate.
They invest in and own properties around the country and around the world in some cases.
Most focus on one area of real estate.
For example, Simon focuses on shopping malls throughout the country.
Others might focus on commercial property like strip malls.
Finally, some focus solely on residential housing, by investing in apartment buildings and single family houses.
The main benefit of REITs is that they can offer high dividend yields which provide an opportunity to generate a lot of income.
The downside is this income is taxed at your ordinary income rate.
This is might higher than the capital gains rate most investments are taxed at.
- Related: Learn why real estate investing is a great way to build wealth
- Related: Click to learn how to start investing in rental properties
If you decide REITs are something you are interested in, make sure you hold them in tax advantaged accounts, like a 401k, traditional IRA or Roth IRA.
This will allow you to avoid the taxes on the income.
#4. Coffee Commodities
I know what you’re thinking. I drink coffee every day, and now I can invest in it? Amazing.
Investing in commodities, like coffee is possible.
But like many commodities, there is great risk in coffee.
It’s sort of like watching gasoline prices while you drive to work during the week.
If there’s any volatility in the weather or the political climate makes an area at risk for conflict, prices will be affected.
On top of geographical risk, there’s monetary risk.
Case in point, you may notice Starbucks raising their prices due to rising coffee costs.
A safer, and less volatile way to invest in coffee or other commodities is to invest in stocks.
Buying shares in Starbucks will currently net you a nice dividend and it has raving fans, limiting some of your risk.
#5. Forward Contracts
You might know forward contracts as futures trading.
The easiest way to understand forward contracts is to look at airlines.
If fuel prices tend to rise over time, an airline could purchase fuel for the entire year at the current price.
This would allow the airline to potentially save a lot of money on fuel.
Although it’s an alternative investment option, I would shy away from futures trading.
To begin, you need a minimum of $3,000 to invest.
However many traders recommend you have a lot more since you will be trading on margin and want to avoid margin calls as much as possible.
On top of that, there are times when your assets can be frozen and you will be unable to get your money out until the next day.
This is known as limit up or limit down.
Essentially, the markets protect themselves.
If you don’t have the time to learn and study futures trading, I would shy away from it.
Much like day trading, you won’t make money taking wild guesses in the dark.
It’s like playing poker in Las Vegas.
Sure, you might run into another tourist that’s easier money than you.
However, most likely you’ll be sitting on a table of regulars and not know it.
In which case, you should take a lesson from Mike McDermott.
“If you can’t spot the sucker in your first half hour at the table, then you ARE the sucker.”
#6. Trading Options
Trading options is another alternative investment option.
This one has gotten more popular as retail investors flood into the market.
Instead of buying or selling shares of a stock, you can buy or sell options instead.
Essentially you are betting that the price of a stock is going to rise or fall to a specific price on a specific date.
Depending if you are using calls or puts, you make or lose money when the options contract expires.
The benefit of trading options is you can do so for a lot less than buying stocks.
But depending on your strategy, your risk can be much greater.
It is for this reason you have to understand what you are doing and what your overall risk is.
A less risky way to invest in options is with selling puts on stocks you would want to own.
#7. Private Companies
I’ve know a few software developers and I’ve been close to the world of startups for years.
Employees are increasingly searching for ways to sell their shares in the next big thing.
The Nasdaq Private Market exists to offer that liquidity.
A private company can use the Nasdaq services to offer previous investors and employees a means to sell their shares.
Although you can’t just waltz in there and purchase private shares, there are other options.
Today, you can find a number of mutual funds which give you access to private company investments.
And surprisingly, you can even get your hands on private equity.
There are some private equity firms traded publicly.
#8. Private Company Debt
Another option when it comes to investing in private companies is to invest in their debt.
To do this, you work with a service that gives small businesses loans.
One example is Worthy Bonds.
Here you invest your money with Worthy and they turn around and use your money, along with other investors money, to offer inventory loans to small businesses.
Worthy charges the small business interest on the loan and cuts you in on the deal.
You earn 5% on your money.
You do risk the money you invest, but the risk tends to be lower for two reasons.
First, the loans are backed by the inventory of the small business.
By having an asset backing the loan, there is little risk of walking away with nothing.
Second, Worthy keeps a large contingency pool in the small chance a loan defaults.
This allows the company to pay you back your investment.
To learn more about Worthy, here is a detailed review.
You can also get started by clicking the link below.
#9. Mortgage Backed Securities
If you’ve seen the movies The Big Short or Margin Trade, you’re probably familiar with mortgage backed securities.
Mortgage backed securities were largely responsible for the Great Recession.
According to Wikipedia, a mortgage backed security is a “a type of asset-backed security that is secured by a mortgage or collection of mortgages”.
Believe it or not, mortgage backed securities are now offered by Fannie Mae and Freddie Mac.
That’s right, the federal government is in the business now.
Mortgage backed securities can be purchased for as low as $1,000.
Much like REITs, they can serve as an alternative investment option to generate income.
If you don’t want to invest directly, there are plenty of ETFs on the market which expose you to these securities.
#10. Consumer Loans
Websites like Lending Club specialize in personal loans with a twist.
Instead of receiving a loan from a bank or American Express, you get your loan from other people.
Interest rates can range from 5.99% to 35.89% and depend on all of the factors you’d expect.
When you invest, you receive monthly cash payments as your borrower pays you back.
As long as you don’t over extend your portfolio, consumer loans might be a decent alternative investments option.
#11. Broadway Shows
Yes, that’s right. It was theoretically possible to invest in Hamilton.
Even though only about 25% of shows are profitable, investing in Broadway is a viable alternative investments option.
However, I would relate investing in Broadway to technology startups.
I would plan on losing your money 100% of the time.
Instead, invest because you love it.
You may get lucky and hit a home run, but chances are you won’t.
Alternative investments are a smart way to grow your wealth.
You just need to understand the risks before you invest your money.
What is the potential return? What is the potential loss? How long until I can get my money back?
You need to ask a lot of questions and be willing to walk away if you don’t understand the investment.
The more you do this, the less likely you will fall for a scam or lose your investment in full.
So be open to other investment ideas, but make sure you take your time to fully vet and understand what you are investing in.