Which gives higher returns?

Intro

Most people think of investment only in traditional platforms such as stocks, bonds, and cash. However, there are Alternative Investments platforms you should know about because they offer great returns.

In this post, I will present three different investment ideas that you probably haven’t heard of and discuss whether they are worth adding to your portfolio.

What is an alternative investment?

Alternative investments refer to a class of assets different from stocks, bonds, or liquid cash. You can’t easily sell them or convert them to cash, which makes them illiquid.

However, most alternative investments or assets are relatively easy to access for retail investors and institutional investors alike, which has made them increasingly popular for investors due to their potentially high returns.

Moreover, these types of investments have slightly different structures and accessibility, and they share identical characteristics to enable you to easily identify them:

  • Alternative investments are not subject to US SEC regulation.
  • They are not liquid assets, so you can’t easily sell or convert them to cash, as mentioned previously.
  • And they are usually not correlated to conventional asset classes in the market.

P2P Lending

Peer-to-peer lending works similarly to a marketplace. It is a platform that brings people together who want to lend money to those who need a loan. The platform provides a way to borrow money without using conventional financial institutions like banks.

Some P2P platforms automatically divide the money you lend among many borrowers, but others allow you to choose the person to lend money to the platform. The interest rates on P2P platforms are higher than on traditional savings accounts, which can range from 7 to 15 percent per year for the lenders and 10 to 30 percent for the borrowers.

If you are interested in becoming a lender on a P2P lending platform, you must check that your local authorities regulate it. Also, be sure to understand the risks involved. Such as the risk of default because the borrower might not pay you back.

All in all, being an investor on a P2P platform is viable because you can control the interest rate you lend to others. Although it comes with certain risks, like the winding up of the P2P company, this can be largely mitigated, provided you do your homework beforehand and spread your eggs across multiple baskets.

Another example of a P2P platform is Prospers; it began in 2005 and provides a wide range of loans, including debt consolidation and medical loans.

Fractional Real Estate

Fractional real estate investing describes when several different investors split the cost of a property among them. Sometimes, each investor is called a shareholder, depending on the type of legal agreement between the investors. This is similar to the concept used for sports cars, private jets, and other expensive items.

Partial property ownership gives you a stake and makes you a part-owner. Fractional real estate investments differ depending on the group of investors or organizations involved. The investment model allows you to get a deed and equity in the property, but you can also buy shares in the property.

Some investment models allow you to stay on the property for vacation and host meetings. You can take over the property and manage it yourself, or rent it out, probably on Airbnb.

Fractional real estate investment has many benefits for an investor, including a lower barrier to entry, which allows you to split the cost among a few investors rather than coming up with a substantial down payment yourself.

Also, it is an excellent way to earn passive income, which will help you build your overall earnings. Let’s say you and your partner agree to the terms; you can set up the property as a fractional rental, hire a professional management company, and earn a significant return on investment. In addition, it provides a lower investment burden.

So, you can start your fractional real investment with little cash; it could be $5 or $100, depending on the company. Therefore, you can earn a passive income with a low salary. The primary drawback of the investment model is finding the right group to work with.

If you want to commence your path to real estate investment, fractional real estate investing is a good place to start—also, buyers looking for a non-primary property, those that don’t want to live in the home. Here’s an example of fractional real estate: Let’s say Ken lives in Dallas, Texas, and wants to purchase a home in Los Angeles for vacation.

Asset Leasing

The investment model allows you to co-invest in assets. Such as bikes, cars, furniture, and electronics leased to companies with a good reputation and remarkable economic growth. Asset leasing agreement terms are pre-agreed, which leads to monthly repayments.

Although it’s hard to think a person could earn money from assets that are slowly appreciating. However, the model is becoming more popular. Investors earn from the model because different companies pay rent at regular intervals. An investor can combine the assets to form a portfolio.
Therefore, you can purchase assets and lease them to a business. The business will pay for using the asset at constant intervals. However, assets can be bought by a consortium. A consortium has more purchasing power and deals with organizations that can lease the assets.
Investors can invest in such lead agreements separately or pull their resources and earn income regularly, monthly, quarterly, or every six months. It depends on the terms of the lease agreement. Typically, these assets yield modest returns (15%–20%).
Asset leasing provides a consistent source of passive income. Many people invest in mutual funds and stocks; however, these investment options are occasionally volatile. Alternatively, leasing assets to companies presents minimal risk since these organizations have strong balance sheets, and the physical assets can serve as collateral.
The alternative investment model suits people who want to generate a fixed monthly or quarterly passive income stream. Also, those who want to diversify their investments are comfortable with long-term investments.

Benefits of alternative investments

  • Lesser volatility
  • High returns
  • Broader diversification
  • Direct ownership
  • Direct tax benefits

Setbacks of alternative investments

  • Investors accreditation
  • Long lockup periods

Who is it for?

Alternative investments can be an excellent fit for anyone who wishes to diversify their portfolio. However, it would depend on your level of interest in actively managing your investments. Here are the categories of investors suitable for alternative investments:

  • Passive investors
  • Retired or income-focused investor

In conclusion, alternative investments provide greater portfolio diversification and lower risk with high investment returns. However, it would help to do your due diligence before selecting any alternative investments discussed in the post.

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