The S&P 500 has fallen by nearly nine percent since the beginning of the year (as of March 1, 2022), thanks to the Russia-Ukraine conflict and rising inflation around the world. As a result, investors may want to consider alternative assets to diversify their portfolios and potentially realize higher returns over the long run.
Let’s take a look at some alternative assets that you may want to consider to help diversify your portfolio and boost returns.
Be sure to check our Portfolio Management Channel to learn more about different portfolio rebalancing strategies.
1. Real Estate
Real estate is the most popular alternative asset, providing income, capital appreciation and tax benefits. While purchasing rental properties is popular among high-net-worth investors, public and private REITs make it easy to invest in a diverse real estate portfolio with low minimums. The only downside is that you cannot realize the tax benefits.
| Symbol | Name | Assets | Expense Ratio |
| VNQ | Vanguard Real Estate ETF | $45.6B | 0.12% |
| SCHH | Schwab U.S. REIT ETF | $6.7B | 0.07% |
| IYR | iShares U.S. Real Estate ETF | $6.4B | 0.41% |
| XLRE | Real Estate Select Sector SPDR Fund | $5.4B | 0.12% |
| ICF | iShares Cohen & Steers REIT ETF | $2.7B | 0.33% |
As of March 1, 2022
In addition to housing, investors may also want to consider investing in farmland. Steward enables non-accredited investors to lend as little as $100 to small farms while Harvest Returns provides similar opportunities to invest in sustainable agriculture with a $5,000 minimum. Of course, there are also several farmland REITs.
2. Cryptocurrencies
Cryptocurrencies have become another popular alternative asset. While their correlation with the stock market varies, there’s no doubt that cryptocurrencies offer some level of diversification along with the potential for higher returns. But, of course, they must fit within an investor’s overall risk tolerance levels.
| Symbol | Name | Assets | Expense Ratio |
| BITO | ProShares Bitcoin Strategy ETF | $1B | 0.95% |
| BTF | Valkyrie Bitcoin Strategy ETF | $40M | 0.95% |
| XBTF | VanEck Bitcoin Strategy ETF | $25M | 0.65% |
| VBB | Valkyrie Balance Sheet Opportunities ETF | $0.5M | 0.75% |
As of March 1, 2022
While Bitcoin and Ethereum don’t offer a yield, the decentralized finance (DeFi) ecosystem lets anyone earn interest by staking their holdings. Some DeFi exchanges offer compelling yields of 10%+, but there have also been high-profile examples of security breaches. As a result, yield farmers should diversify their exposure across platforms.
See our Active ETFs Channel to learn more about this investment vehicle and its suitability for your portfolio.
3. Crowdfunding
Regulation A+, or the Crowdfunding Act, opened the door for non-accredited investors to invest in private companies and opportunities. Through platforms like Mainvest or SMBX, anyone can invest in private equity or debt in small businesses, while Wefunder, SeedInvest, and StartEngine let anyone invest in startup equity.
While diversification is essential for conventional portfolios, it’s even more critical with higher-risk crowdfunding investments. Therefore, investors should ensure an appropriate level of diversification regarding the number of deals, industries, geographies, stages of development, and the types of securities (e.g., preferred stock, convertible debt, etc.).
4. Peer-to-Peer Lending
Peer-to-peer lending makes it easy for anyone to lend money to individuals or businesses at attractive rates. For borrowers, these platforms provide a better interest rate and access to capital that banks won’t offer. For example, Prosper, Peerform, Upstart, and Funding Circle all offer a range of lending opportunities.
When lending to individuals or businesses, investors should ensure that they are comfortable with the borrower’s credit rating and diversify their loan portfolio to minimize the impact of any individual loss. Fortunately, these platforms provide a wide range of loans to choose from, making it easy to build a diversified portfolio.
5. Fine Art & Wine
Fine art and wine have a very low correlation with the stock market and offer the potential for significant capital appreciation. But, of course, the trade-off is that these products are far less liquid than conventional securities and may involve high storage costs. Nevertheless, platforms like Vinovest or MasterWorks make these markets accessible.
The Bottom Line
Alternative assets provide investors with an excellent way to diversify their portfolios. Thanks to Regulation A+ and new technologies, the barriers to entry for these unique investments have become much lower, enabling non-accredited investors to participate with as little as $100.
Take a look at our recently launched Model Portfolios to see how you can rebalance your portfolio.
