The current market landscape is the most volatile we’ve seen in decades. From election cycles to inflationary pressure, it’s become impossible to count on solid returns solely from traditional methods of investments, like residential real estate or stocks.
Diversification is needed for stability and long-term growth. If you’re on the fence about alternative investments, here is the case to consider the next generation of investment trends (along with some suggestions to get you started).
The Case for Alternative Investments
Traditional asset classes include things like bonds, cash, treasury bills, and the aforementioned stocks and physical residential real estate. These are classic forms of investment that have historically offered solid, dependable returns.
However, the modern marketplace has become so turbulent that it is difficult to predict that a stable portfolio of traditional assets will be enough. Many professionals predict that the classic 60/40 stocks/bonds portfolio will not be able to perform at levels previously anticipated and that a broader set of asset classifications is needed to create both stability and the potential for robust growth over time.
This is where alternative investments come into the picture. These are assets that don’t conform to traditional formats. To be clear, that doesn’t automatically mean they have greater risk. On the contrary, technology has opened doors for the average investor to access a variety of safe investments previously inaccessible to smaller, average investors.
Next-Generation Investment Trends
True wealth-building in the 21st century requires a more diversified portfolio. Here are some alternative investments that are blazing the trail for the next generation of wealth generation.
Mineral and Royalty Interests
In most areas of the world, governments own and control all mineral interests – a term referring to the underground real estate beginning around 100 meters below the surface of the Earth and extending to the Earth’s core (along with all the natural resources contained within it).
The United States, however, stands alone in allowing private citizens and businesses to own these interests, along with the lucrative lease bonuses and royalty streams that come with them, ifand when natural resources, such as crude oil or natural gas, are discovered and extracted from the property.
Despite the legality of owning these interests, would-be investors in the mineral and royalty interest industry have historically encountered very high barriers to entry, including high
capital requirements, complicated title review processes, and other legal challenges. Tokenization technology has allowed companies like Mineral Vault to offer security tokens representing fractionalized interest in mineral properties, opening up this previously out-of-reach asset class to national and international audiences.
This novel approach to investing drives greater demand and higher potential returns from the
energy industry. While the technology to access the investment is innovative and new, this form of real estate is pre-existing and established. It benefits from immediate and stable cash flow from already-producing wells, offers upside potential as new wells and leases are brought online in the future, and includes built-in inflation protection since extracted hydrocarbons are sold at spot prices each month.
Commercial Real Estate
In the same vein as mineral interests, commercial real estate was a previously high-profile investment vehicle. However, digital technology enables small-scale investors to access this asset class.
One example is PropTech company RedSwan. The commercial real estate platform tokenizes large properties, allowing investors to invest at relatively low entry points.
The emphasis here is supporting a digital asset with physical backing. This gives the asset a more sustainable trajectory than something purely digital (and thus more volatile), like a cryptocurrency or EFT.
Similarly, platforms like Fundrise and RealtyMogul have made it easier for smaller investors to crowdfund commercial real estate projects. These platforms provide access to high-quality properties such as office spaces, retail centers, and multi-family developments, traditionally only available to institutional investors. This democratization of commercial real estate investing allows individuals to diversify their portfolios in a tangible, income-producing asset class without the usual barriers of high capital requirements or market expertise.
Commercial real estate investments can act as a hedge against inflation. As inflation rises, rents typically follow suit, helping to preserve the value of the investment over time. This stability, combined with the increasing accessibility of tokenization and crowdfunding platforms, makes commercial real estate a compelling option for diversifying beyond traditional assets.
Private Equity and Venture Capital
Private Equity is developing similar tokenized platforms, allowing those with limited resources to crowdfund angel investments and venture capitalist ventures.
Both of these areas traditionally offer high returns. The only difference now is that technology makes them accessible to more people—and in nuanced ways.
Platform Zoniqx, for instance, utilizes multiple digital currencies, such as Ethereum for advanced smart contracts and Ripple for fast, low-cost transactions. These allow diverse investors to contribute to the private equity sector on their terms.
These are just three of many different options in this evolving area. There are plenty of other options if you look for them, like sustainable ESG investments and culturally relevant assets such as art, collectibles, and luxury items. The key is looking for assets using technology to access historically stable investment vehicles.
Practical Tips for Getting Started
If you see the value of next-generation alternative investments but aren’t sure how to pivot your investment strategy, here are a few tips to get you started:
- Assess your risk and compare it to the amount of time you have before you want to begin drawing on your investments.
- Consider your financial goals and make sure they are updated.
- Look at how far your current investing will get you and make a data-backed assessment of how much you need to improve.
Use these steps to get a firm grasp of what you actually need to accomplish. This serves as a springboard for researching alternative investments and deciding which ones fit your risk tolerance, timeline, and diversification needs.
Next-generation investing is the future. It represents the willingness of investors to stay open-minded, resilient, and ready to adapt to change. If you want to keep up with that ongoing evolution, take the time to consider these cutting-edge alternative investments and make an informed decision on how they should factor into your long-term investing strategy for wealth generation.