Unconventional Financial Opportunities Worth Exploring (That You May Not Have Thought Of Yet)
In the world of finance, it's not just stocks and bonds that promise returns. Some overlooked alternative investments, accessible from as little as £10, have the potential to outperform the S&P 500. Here are a few options:
- Fractional Investments in Private Equity or Private Credit
Thanks to fintech platforms, retail investors can now access private equity and private credit markets, which historically have outperformed the S&P 500 by several percentage points annually after fees. These investments benefit from higher yields during rising rate environments [1].
- Small Business Ownership or Buying a Stake in Existing Private Businesses
Many small businesses generate substantial cash flows and sell at lower valuation multiples (3x-5x earnings) compared to public equities (around 20x). Platforms exist for investing in or buying shares of local businesses, startups, or pre-IPO companies, sometimes with low minimums. This offers direct exposure to cash-generating enterprises beyond stocks, though it requires more involvement and carries idiosyncratic risk [2].
- Certain Hedge Fund Strategies or Funds of Funds
Focusing on volatility-driven strategies like global macro or managed futures, these investments can perform well even when traditional equities fall. Some of these products are gaining accessibility to retail investors and can act as "shock absorbers" in turbulent markets [1].
- Real Assets or Commodities-Related Investments
Investing in real assets or commodities via fractional shares or ETFs can offer entry points from small amounts. These investments hedge against inflation [1].
It's worth noting that while many alternative investments may outperform during certain periods due to low correlation with traditional assets, the S&P 500 still often leads in raw returns over shorter horizons [3]. Alternatives tend to reduce volatility and improve diversification rather than guarantee outperformance every year.
For those with smaller capital, the most realistic entries are through fractional shares of private equity funds, alternative ETFs, or platforms for small business or startup equity crowdfunding, which have lowered traditional barriers to entry.
Beyond the financial world, other unconventional investments include:
- Collectibles and Memorabilia
Classic cars, motorbikes, domain names, Lego sets, Pokémon cards, and rare trainers have all shown potential for high returns. However, it's essential to consider factors like condition, provenance, and niche markets, as not all classic cars increase in value, and the market for vintage tech and media can be trend-dependent [4].
- Non-Fungible Tokens (NFTs)
NFTs, often tied to art, music, collectibles, or virtual items, are a growing corner of the digital economy. They can come with perks such as access to communities or future drops [5].
When considering these alternative investments, remember to invest wisely. Only invest in NFTs you understand, and never put in money you can't afford to lose.
[1] Investopedia. (n.d.). Alternative Investments. Retrieved from https://www.investopedia.com/terms/a/alternativeinvestment.asp [2] Crowdfund Insider. (2020, August 24). The Case for Investing in Small Businesses and Startups. Retrieved from https://crowdfundinsider.com/2020/08/244571-the-case-for-investing-in-small-businesses-and-startups/ [3] Forbes. (2021, January 26). Why Alternative Investments Aren't Always Better Than The S&P 500. Retrieved from https://www.forbes.com/sites/forbesfinancecouncil/2021/01/26/why-alternative-investments-arent-always-better-than-the-sp-500/ [4] Business Insider. (2020, September 22). 10 unconventional investments that could help you beat the stock market. Retrieved from https://www.businessinsider.com/unconventional-investments-to-beat-stock-market-2020-9 [5] CNBC. (2021, March 23). NFTs are the new gold rush, but beware of the risks. Retrieved from https://www.cnbc.com/2021/03/23/nfts-are-the-new-gold-rush-but-beware-of-the-risks.html
Investing in fractional shares of private equity funds and certain hedge fund strategies, such as global macro or managed futures, can provide opportunities for retail investors to outperform the S&P 500, especially during rising rate environments. Furthermore, alternative ETFs allow smaller capital investments in real assets or commodities, hedging against inflation.
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