Alternative Investments Offering Interesting Possibilities for Adventurous Investors
Posted on January 30, 2018
There is no hard and fast rule about what an “alternative investment” is. It is really up to personal interpretation. For the purposes of this article, we’re referring to alternative investments as ones that are outside the immediate mainstream. Therefore, an S&P 500 index fund is mainstream whereas an oil and gas limited partnership would be an alternative investment.
Let’s now look at a few interesting alternative investments.
High Dividend Stocks
Buying high income stocks that pay a healthy cash dividend is something that the writers at Dividend Mantra know only too well. The idea here is that only receiving a paltry 2 percent from an investment in an S&P 500 or total market index fund or something smaller from an actively managed fund isn’t enough to live on. While bonds deliver a higher income, they often don’t rise in value with inflation and so the income comes at the high cost of your investment losing value every year.
With income stocks, they tend to manage their earnings better (squandering them less often on pet projects by the CEO) which allows companies to pay out a healthier dividend while still growing the business. When buying at a sensible valuation, it’s possible to secure an attractive yield for the coming years and live off that income.
Investing in websites, mobile apps and other digital assets is somewhat new for most investors. However, it’s a growing field because of the high return that’s possible with the right purchase. Combined income and capital returns of around 50 percent are often achievable once having experience with this asset class.
Buying websites is usually done on a 20-36-month multiple of earnings, which compares favorably to multi-national corporations where an investor is usually required to pay up to 10 times as much. The difference is the perceived risk level and reliability of the return from a small investment to one in a billion-dollar company.
Real Estate Investment Trusts
Real Estate Investment Trust (REITs) are pooled real estate assets that have a management team to take care of the day-to-day issues with tenants, maintaining utilities, and more. REITs run the gamut from collections of office buildings to apartments and single-family homes to convenience stores and warehouses. Public REITs trade on the stock market in much the same way as operating companies like Walmart or General Electric and can be purchased through a broker the same way.
The main advantage with REITs is that their income is usually not taxable until it’s received by the investor if they pay out 90 percent of their profits each year. Some REITs even pay monthly dividends like the Realty Income REIT. The income from REITs is usually 3-7 percent annually, but there are times when REITs have traded down, and their income yield is even higher.
Exploring alternative investments has the potential to deliver a higher than average return and with a higher income than traditional stocks and bonds in a balanced portfolio. As with all investing, care must be taken to understand any investment fully before considering any putting money into it.