3. Peer-to-peer lending
Peer-to-peer lenders pool their cash with funds from other investors to lend to individuals. Peer-to-peer lending platforms such as LendingClub (LC +5.06%) and Prosper are structured to allow you to spread your capital across multiple loans and risk profiles. This structure diversifies your holdings and lowers your overall risk. You can also customize your peer-to-peer loan portfolio based on your personal risk appetite and investing time horizon.
Lending always comes with the risk that you may not get your money back. Peer-to-peer loans are unsecured, meaning they are not backed by a hard asset like a car or a home, which you could repossess if necessary. But diversifying your money across multiple loans with different risk profiles generally reduces the overall risk of this type of investing.
4. Commodities
Commodities include agricultural products such as wheat and corn, energy products such as oil and gas, industrial metals such as steel, and precious metals such as gold. Since owning most commodities in their physical form is impractical for most investors, those with an investment appetite for physical commodities generally tend to focus on gold and other precious metals.
Physical gold can take the form of coins, jewelry, and bullion. Owning any precious metal directly requires you to pay to store it in secure locations and also to insure the asset against theft. If you don't want to store and manage a physical commodity, you can buy gold certificates from companies such as Perth Mint Certificates that you can exchange for physical gold.
Owning a physical commodity, even gold, does not guarantee you will profit. The price of gold or any precious metal can decline, and buying and selling a physical commodity requires you to pay broker fees to facilitate purchase and sale transactions.
Even when they’re traded only in the form of futures contracts, commodities are considered an alternative asset class because their price movements are generally uncorrelated with the movements of the stock market. Futures trading in commodities is by far the most common way that investors gain exposure to this asset class.
5. Hedge fund investing
Hedge funds often make large directional bets in the stock market but also invest in sophisticated types of securities to mitigate -- or hedge against -- the risk of large losses. Investing in a hedge fund can provide exposure to a very profitable investment strategy, although it's also possible to lose all of your money.
The typical fee structure for a hedge fund has two parts. The hedge fund manager collects 2% of the fund's assets under management annually as a management fee, and also keeps 20% of the annual profits the fund's investments earn.
Hedge funds employ wildly different approaches to investing, so it's possible to invest in hedge funds that reflect your risk appetite. When researching hedge funds, focus on those with managers who share similar investing philosophies.
6. Cryptocurrency
Cryptocurrency is digital money enabled by blockchain technology. You can easily buy cryptocurrency such as Bitcoin (BTC +3.24%) using a cryptocurrency exchange like Coinbase (COIN +3.25%).
While acquiring cryptocurrency is simple, investing in this emerging alternative asset is risky. The price volatility of cryptocurrencies is extremely high, and with so many emerging digital currencies, it is impossible to discern which will be widely adopted.
The industry being relatively new also increases the security risks for your cryptocurrency holdings, as the digital wallet where you store your crypto assets could be vulnerable to hacking. You can also lose access to your cryptocurrencies.
With crypto's functional uses still emerging, the values of many cryptocurrencies are likely to increase dramatically. Cryptocurrencies already act as stores of value, though it remains to be seen if transactions using cryptocurrency will become commonplace. Countries around the world are grappling with the rise of cryptocurrencies and developing regulations that will significantly shape the future crypto landscape.
