Alternative Investments Outside the Stock Market

The volatility and fluctuation of the stock market is well known and documented. However, many investors only invest in stocks, mutual funds, or exchange-traded funds (ETFs), which can make down-periods of the market a little stressful.

This uncertainty may lead you to explore diversifying your portfolio. But what does that really mean? Does it leave you wondering, “Where should I put my money?”

Investments outside the stock market

There’s a wide range of investments outside the stock market, and for many, they’re more accessible and easier to understand. Alternative investments offer true diversification while in many instances affecting local, social, or environmental causes.

Wealthy and institutional investors are increasingly finding value in this asset class:

• Ultra-high-net-worth investors (those with a net worth of at least $30 million), dedicated 50 percent of their assets to alternative investments in 2020
• At $7.4 trillion, investors had more money in alternative asset funds in 2020 than ever before
• Only 7 percent of investors plan to decrease their alternative investing in 2021

The popularity is not surprising when you discover the strong returns many leading alternative investment options have had – historically and recently. The assets have fetched average annual returns anywhere from 10 to 40 percent – and that’s not factoring in emerging assets such as Bitcoin.

Before we reveal some of these assets, here are the average returns of traditional investments over the past 20 years for comparison.

Traditional Investment Annualized Returns

• Russell 2000 Index:  7.29%
• S&P:  500 5.37%
• DJIA:  5.35%

Here are just a few of the many alternative investing strategies that have far outperformed traditional investments.

3 Alternative Investments Outperforming Stock Market Returns

1. Real estate fix-and-flips

Average rate of return 2020: 40+%

What it is: An investor buys a property – usually in distressed condition for a discounted price, rehabs the property in a fairly short period, and resells it at a profit.

Why investors like it: It’s possible to complete more investments quicker, potentially increasing the annual return on investments significantly. It can also be rewarding to witness the transformation of a home and with it, the revitalization of a neighborhood.