Before you start looking for alternative investments with big returns, there’s one thing you need to understand. In the investment market, the more secure investments are usually safe but don’t give you huge returns. When investments are a little more volatile, they make up for it by giving you higher returns when possible – but they can’t guarantee these returns.
Investment brokers will usually ask you how risk averse you are. They’ll check your income expectations and then recommend investments (including alternative investments) accordingly. They have access to opportunities that aren’t available in the retail investment market – but they usually specify a minimum amount that they’re willing to work with, and you will have fees to pay.
There are also a few things you can try on your own, but then you will have to assess the risk versus the possible benefit yourself.
This said, here are some ideas for alternative investments you can try at your own risk. Don’t gamble money you can’t afford to lose, be as smart as you can, and you could stand to get good income from your investment.
1. Private Equity
Most businesses aren’t public companies with stock exchange listings, but many of them are interested in selling shares. Private equity firms like Blackstone have access to a range of investments and would help you to spread your risk.
Returns would be difficult to guess at – it all depends on the company and how successful it is. Just remember that if it sounds too good to be true, it probably isn’t either right or true.
2. Direct Investment in a Private Company
If you happen to know of a private company or someone with a great startup idea who is looking for capital, you could invest directly. Don’t invest all your savings in any one company – unless you’re comfortable with a worst case scenario.
Check out their business plan realistically, and ask questions. For example, if they have an income forecast, where did they get the figures? Ideally, choose a more established company over a startup, because many startups fail, even when backed with a good basic premise.
3. Venture Capital
Chances are, you’ll have to work through venture capital specialists like Greylock Partners. Although this is a risky investment, because venture capital usually involves a startup company, you could get huge returns. Google started up with venture capital as did Facebook and Twitter. If you’d been a venture capital investor in one of these giants when they started out, you could have got a massive return.
Once again, possible returns (and potential losses) are difficult to calculate without looking at the company and its business plan, but that’s what venture capital experts do, so you’d be well advised to work through professionals.
4. Buy or Invest in Real Assets
Real assets are tangible things like property or precious metals. You can either buy them yourself, selling up when the price looks right, or you could work with a company like Artvest Partners, a firm that specializes in art investments. With private investments, you’ll be on your own, so you need to look at the history of the investment to assess your chances of good returns.
In the property industry, for example, you could score big by buying an off-plan (yet to be built) real estate investment and then either renting out the property for steady income or selling it once it becomes a reality. Once again, there are risks, so do your homework!
You can also get into property investment without buying a single property yourself. All you do is invest your money in a real estate investment group. Then you leave the ‘gambling’ to the experts and hope for the best. Although property took a hard hit in the last financial crisis, it has recovered, so if you’d invested and ridden out the storm, you’d be doing pretty well right now!
Precious metals are tricky as investments. In general, retail prices aren’t the same as trading prices, so you could find it difficult to offload your precious metals at anything like their retail value if that appreciates and you decide to sell.
Still, those who get in when the market is cheap and cash in when the market is strong could stand to score. Investopedia says that real assets are the easiest way for a private individual to get into alternative investments.
5. Hedge Funds
Hedge funds consist of a portfolio of high-risk investments, but because the investments are spread across a range of investment types, they give you a better chance of realizing good returns on your portfolio than if you just took out one or two high-risk investments yourself.
Unfortunately, it takes more than a few pennies to join one – the usual entry level investment is around $500,000! Returns? You can’t be certain, but you can look into the history of the hedge fund as an indicator of performance. In 2010, when the stock market was hard-hit, many hedge funds actually thrived.
6. Managed Futures
These are very similar to hedge funds, but they undergo greater supervision and regulation from the authorities. Futures involve an agreement to buy a set financial asset at a specific date and a set price. The big advantage is that entry level investment is much more accessible than it is for hedge funds. You only need $5,000 for some managed futures.
This type of investment is also done through a fund manager. Your investment will cover options, futures, forwards and swaps that are set up by your fund manager. The simplest way to explain them is to say that your fund manager agrees to pay for an investment when it reaches a predetermined level.
Derivatives have been blamed for contributing to the last market crash, but they are often chosen to reduce risk. If you decide to go it alone, you will have to identify futures and options (like futures, but you can say ‘no’ when the time comes) yourself. Swaps and Forwards aren’t usually available to individual investors.
8. Hit the Small Time
Peer to peer lending is a possible opportunity, and you can do it online through sites such as Lending Club. But be warned. If you charge a higher interest to someone than their state’s commercial cap is, your transaction may be illegal. However, if you move over to Bitcoin, which isn’t recognized legal tender, you could get away with it.
Just remember that your borrowers may be people who can’t get a loan in a regular way, so keep your loans small enough not to miss in case something goes wrong with your borrower.
As the song by Wishbone Ash says: “There ain’t no easy money”. If you’re looking at high potential returns over the short term, you’re probably also looking at high risk. So choose a budget, and remain within it. You could win big – as long as you realize that you could also lose out altogether.
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