Alternative Investments – The Ultimate Guide

Since I lost like, a quarter million bucks in stocks, options, and forex trading from 2001-2007…I’m a big fan of more conservative, alternative investments. I don’t own a single stock nowadays and I sleep a whole lot better than I used too when I was day-trading machine.

My Best Alternative Investments

  • Lending Club – My favorite and best returning alternative investment I’ve made. About 7.5% the last few years. Love it. I have over 100K invested here.

Alternative Investing Articles

Alternative Investing Resources

Savings Accounts

Safe, low risk, low return

11 Alternative Investment Options


I hate stocks.

Well, I don’t really hate them. But they’ve caused me a ton of grief in the past, and thus, going forward with any “investing” I do, I am going to avoid stocks, mutual funds, forex, really anything that could be traded in the short term. Just not my cup of tea.

That leaves me looking at alternative investments for building up my networth. I currently am keeping a good chunk of change in my SmartyPig account, and that earns 2.01%, but I think I can do better and still sleep at night. I used to live for a risky investment, now I want to avoid that feeling if at all possible.

Possible Alternative Investment Options

-Land
-Real Estate
-Gold (nope, too risky in my view)
-Businesses (buying a franchise or small business, etc)
-Social Lending (Lending Club, Prosper, etc)
-Fine Art
-Wine
-Classic Cars
-Municipal Bonds
-TIPS (Treasury Inflation-Protected Securities)
-Fixed Annuities

Lets take a look into these, one by one, and see if any might be appropriate for me (and you!) in 2010.

Land

They aren’t making any more of this. But is land really a good investment? As with many investments, it looks like, “it depends”. Land tends to be very illiquid (which is OK for me to some extent) and can take a long time to sell. But I wouldn’t be looking to sell the land anytime soon. If anything, I’d want to buy a piece of land I could one day build a house on out in the country. It’s a crazy dream of mine, but I’ve always wanted like 5-10 acres for a small ranch, with some riverfront.

Cost? $250,000 in an area I would want to buy.

Risk: Medium

I could see myself making an “investment” in land when I am older, but right now it doesn’t make sense. No matter how cool it would be to own my own patch of dirt.

Real Estate

The classic story of the down on their luck person who gets into “real estate” investing and makes it big is so cliché I hate even bringing it up.

While owning and renting out real estate might sound like a blast for some people, I have little desire to be a landlord. I’m not super handy, and while I would like to learn to fix up a house, I just don’t have the time right now.

Risk: Medium

While I may purchase a home again someday, my credit history is pretty beat up, so I don’t see this as an option until at least 2011.

Gold

Gold prices have gone nuts in the past few years, and I think buying gold right now would be about as risky of an investment as I could find. So I’m going to stay away. Gold bugs will say that Gold will always hold it’s value, but with the run up it’s had, it’s just too risky for my blood

Risk: High

Buying a Business

This is one that intrigues me a bit. I have quite a bit of business experience now, my current software biz has 6 employees now, and I’ve finally figured alot of the operations side of running a business out.

Buying say a local restaurant definitely appeals to me. But, having not ever run a restaurant, I’d probably pick something else, but you get the idea. I know the failure rates for businesses, but I think there is opportunity here that I would really enjoy.

Risk: High

If I could find the right type of small business, that was local to where I was, and I could run as an absentee owner (ie, have a store manager run the day-to-day operations), I might consider it.

Social Lending

I’m a big fan of social lending. I have a small account funded at Lending Club, and so far, my returns have been great, just over 8%. Heck, I even worked part-time at Lending Club last year, which was a blast.

The two major players in the social lending sphere are Lending Club and Prosper.

Risk: Medium

For me, I need to start putting more of my cash reserve into Lending Club, maybe even 20%. I feel confident in the Lending Club team and their processes to keep defaults low.

Fine Art

I read up quite a bit on “investing in art” and it seems very, very risky. Sure, the market has had some great returns, but it seems mostly on very high-end dead artists stuff. And even still, the market seems to depend on the wealthy too much.

I like investments that I have some control over. Art is not for me. Not liquid at all, and I’d rather just support some local artist and buy something I really really enjoy.

Risk: High

Wine

Here is one where I think for some people (wine lovers!), this might be worth looking into.
Me?
I just don’t like alcohol all that much. I rarely drink wine, and don’t particularly like it. So, investing in wine is out for me. But for those who invest in Bordeaux wines, apparently the risk isn’t terrible. Also the New York Times thinks now is the time to invest….

Risk: High

Don’t get drunk on this investment!

Classic Cars

This is another alternative investment option that seems unlikely to payoff unless you know the niche well. I know nothing about cars, but I’m sure there are lots of people out there who could identify value in classic cars. Just not for me.

At least with this type of “investment” like wine, you get something you can be proud of. But that’s not a good reason to invest in something. I want to invest in numbers, not the number of waves I get out on a sunday drive.

Risk: Medium

Municipal Bonds

Muni-Bonds are bonds issued by local governments to fund anything from schools to roads to a general budget. Looking up some Municpal bonds in Washington State I found a bunch for some of the Ports around here as well as many of the counties. Most yields were in the 5% range on average.

Muni-Bonds are often non-taxable, which is nice, especially if you are in a higher tax bracket.

Risk: Low-High (depends on the Bond Rating)

This is something I would consider investing in. I think a well diversified muni-bond portfolio could be a pretty low-risk investment, but it’s something I want to do some more research on in 2010.

TIPS

TIPS are Treasury Inflation-Protected Securities, which, are pretty much exactly what they sound like. Government sold by Treasury Direct (or your broker), TIPS are issued in 5, 10, and 30 year terms and payout interest twice a year. Interest is subject to federal income tax, but not state or local income taxes.

If inflation occurs, your twice yearly interest payment will increase (market to the Consumer Price Index). Likewise if deflation occurs.

Risk: Low

These look interesting, but the yields are not great right now (shocker) with the 10 year yield near 1%. Ouch. I’d rather just put my money in a high yield account.

Annuities

Oh boy. Now we are getting into some controversial stuff. Depending on who you ask, Annuities can be a great income stream, or an absolute ripoff. The advantages seem to be that you get a fixed return…that’s nice. But at what cost? The high costs of annuities and the general complexity of them are enough to keep me away

Risk: Medium

Alternative Alternatives?

Staying away from stocks, mutual fund, et. all….what other alternative investments might be worth pursuing? Alpacas? Beanie Babies? : )

No really, what can you think of that is outside the box?

 


What is a Self Directed IRA?

I’ve been looking into IRAs recently just for future savings purposes. I used to be completely confused, but now I’m starting to grasp all the different IRA flavors.

So, what’s a Self Directed IRA?

A self directed IRA allows you to invest in assets beyond just stocks and ETFs. You could open a Self Directed IRA to invest in a franchise, or a partnership, even buy real estate. The possibilities are pretty close to endless with a Self Directed IRA.

Contribution limits are the same as a Traditional IRA or a Roth IRA: $5000 for 2008 ($6000 if you are old. 50+)

Lending Club now open for Self Directed IRA Investing

My part time employer Lending Club announced a new Self Directed IRA investment option today in partnership with EntrustCAMA.

Here is the press release.

Should I open an IRA before April 15th?

I’m looking at a nearly $9,000 personal tax bill for 2008. I’ll be able to pay it…but I’d love to reduce the number a bit. I took the standard deduction, no other fancy pants stuff there. But when I input a $5000 contribution to a Traditional IRA (which is how I would setup a Self-Directed IRA), my tax liability drops to around $7800 using turbo tax online.

That’s $1200 I would save by funding a $5K account at Lending Club.

That’s sounds super darn tempting. I need to talk to my accountant first, but I think this might be a good move for me on the personal side (remember, my only debt now on the personal side is my mother and student loans).

Does anyone else have a Self Directed IRA? How do you use yours?

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