At first, only what most perceived to be the elite was possible with alternative investments.
With its acknowledged investor definition, the SEC defines the wealthy. In order to qualify for investment in such alternative investments, you will be required to have an income in the last two years of at least $200,000 (individual) or $300,000 (joint). The law also notes that the investor believes the sales will continue.
If the income criterion is not met, then the net value of an accredited investors (excluding personal residency) shall be at least $1,000,000.00.
Although that group is growing, it leaves millions of people out who could benefit from the diversification that this asset class offers.
In the early days of these investments one thing common was high fees. Initially, managers charged 2 percent of the investment amount plus 20 percent of profits to investors. Here’s what it means.
What are Alternative Investments?
Let’s start with what the traditional investment products consider the most–those would be stocks, bonds and cash. Investors can put money in both stocks, bonds and cash on both the U.S. and international markets. Most investors access those products through mutual funds and traded funds (ETFs). The most popular way to invest in those markets is through index funds.
Investors put their money into funds which mirror the market when investing in index funds. Some fund managers choose which stocks to purchase, when to buy and when to sell. Alternatively, investors in index funds get all the stocks in that index (such as the S&P 500) in the same proportion that each stock makes up in the indexes
Investors are taking what the market offers, instead of trying to beat the market. It’s a very cheap and easy way to make an investment.
On the other hand, alternative investments aren’t mutual funds, ETFs or index funds. However, the funds have a management team and are investing in products that vary from the stock and bond markets. These include offerings such as private equity, real estate, hedge funds, venture capital, futures controlled, and derivatives.
You’ve seen many of those names thrown in the financial press. Most alternative investments have high minimum initial investments, in addition to high fees.
Innovation joined the alternative investment market for the aforementioned reasons. As a result, companies started creating investments that included lower fees and lower minimum investment. They made those accessible to investors who were not accredited. For the everyday investor, these innovative investments are a game-changer.
The primary vehicle for such investments are crowdfunded real estate investment trusts. These newer funds register as exempt funds with the SEC, usually under the SEC’s Crowdfunding Regulation. Crowdfunding in real estate, as with crowdfunding for individual or small businesses, allows smaller investors into an investment space that hasn’t been available to them in the past.
We’re going to be providing a few specific funds to consider early.
Certain options are pooled financing (managed futures, commodities, long-short funds, etc.). We’re going to leave the focus on these for another day. We want to focus on private funds, which are more like traditional alternative investments that were originally intended for the rich.
Alternative Investments For All
We would like to highlight three viable investments for non-accredited investors. One, Vinovest, is a single bid. As mentioned in the last section, the other two, DiversyFund and Fundrise, are crowdfunded real estate funds.
Let’s get in on the summaries.
Vinovest offers a unique alternative investment in the assets; an investment class would not normally be considered. We talk about good wine. For a more detailed description, you can read our review of Vinovest.
The first thing to know about investing in fine wine is that expertise is required to understand how to select the right wines. Vinovest has a team of experts, called sommeliers, who have undergone several years of rigorous training. The Master Sommelier award was won by three of their four sommeliers. That is the highest degree of wine industry recognition. Such people know what their wine is.
Wine selections come from their knowledge, and their technical team has developed a sophisticated algorithm— the result— the best wines with the best chance or value for money. You own the bottles of your own. Vinovest will store and age the wine at its state-of – the-art facilities worldwide. They guarantee that your wine is safe.
The minimum investment is that of just $5,000. It is a special deal and worth considering
FundRise and DiversityFund
Crowdfunding provides a form of financing that, with its high rates and fees, can circumvent Wall Street firms and big banks. The crowdfunding introduction has been disruptive. Unaccredited investors now have access to similar real estate investments that have always been enjoyed by accredited investors in crowdfunded real estate.
FundRise and DiversyFund are both crowdfunded funds for the real estate. Investors may invest as little as $500 in those assets.
Here’s a rundown of each. For reference, you can find a link to our analysis of both.
So far, Fundrise has invested more than $2.5 billion and has a history of above-average returns. They offer three core plans to get you started–additional revenue, balanced investment, and growth. Each name describes the fund’s goals. When seeking money, find the Supplemental Money Fund
DiversyFund is a reasonably new entrant in the field of crowdfunded real estate investment, as opposed to Fundrise. Unlike the investment options offered by Fundrise, DiversityFund’s team focuses on rising money for investors. If shopping for property they have a value-add investment strategy.
What that means is they are searching for multi-family properties (apartments, condos, etc.) in good neighborhoods that have positive cash flow (renters). The value added to their range of properties comes from selecting properties that need some research. We are not talking in terms of a complete redo. The building might instead need a new roof, renovated bathrooms or kitchens, or perhaps a fresh coat of paint.
With the upgrades, when the leases expire, they will demand more money, and new tenants get on board.
Alternative Investments for Approved Investors
Have you ever considered investing in the farmland? Didn’t you follow the thought because you didn’t know you’ve got enough money or didn’t know enough? If any of those describes you, you’ll want to know more about FarmTogether.
FarmTogether provides an investment opportunity that allows investors to own real land at low cost. Real land is less inflation-prone, and more stable than many other investments. Why? For what? We’re not making any more of it, for one thing. The supply and demand law means they are likely to appreciate it.
I hope you see by now that alternative investments are no longer the exclusive investments of the super wealthy. Competition from mutual funds, and more recently from the arena of crowdfunded investing, has brought down costs and minimum investments. That is not so good for the producers of the Wall Street product. But to customers, this is fine.
The six investments that we highlight are not intended to be the cure-all for alternative investments, although we do agree that Vinovest and FarmTogether are two of the most interesting products available.
You should learn why you’re investing before doing any investment. You should know what you want to do for your savings. Once you get the answers to those basic questions, you can take the time to evaluate the best investments to help you achieve those objectives. If you’re not sure where to start, MoneyMade would be a great place to start. If you find you need help in making decisions, consider hiring an independent financial advisor.
Whether you are a seasoned investor of a DIYer in search of alternatives to traditional stocks and bonds, we believe that the six investments highlighted here are worth considering.