Did you know that a zebra spends up to 18 hours every day eating? It spends that time munching on various grasses, twigs, leaves, shrubs and even tree bark. A zebra’s digestive system is incredibly adaptable (and its teeth incredibly tough), so even when facing scarcity, it can usually find food that most other animals can’t (or won’t) eat, like tall wetland grass.
A male lion, on the other hand, sleeps an average of 20 hours per day (even the females, who do most of the hard work, still sleep up to 18 hours a day). But there’s a catch — on most days lions eat very little, and many days they don’t eat anything at all. However, when they do eat, it’s quite a feast (sadly often of zebra…), and they can eat more than 10% of their body weight in a single meal (and they’ll sleep for 24 hours or more afterward!).
So what on earth does that have to do with your alternative investing style?
Well, some alternative investments are kind of like being a lion: long periods of just waiting (or depending on your personality, worrying…) punctuated with occasional feasts. Angel investments can take many years to return anything, and the harsh reality is that the most common outcome for an angel investment is somewhere between breaking even and a total loss (and if your money is tied up for 7 years or more, breaking even is effectively a loss, since you could have otherwise put that money into something that would generate a return). Yet when they do succeed, they can succeed spectacularly, generating outsized returns.
Other kinds of alternative investing are much more like being a zebra: slow and steady grazing, hoping to avoid becoming anyone’s meal. Investing in short-term, secured real estate loans with regular interest and principal payments will keep the money flowing into your bank account every month — but when the housing market eventually turns down, at least some of the herd won’t make it.
Neither is fundamentally better or worse, it all comes down to whether any particular approach is the right choice for you as an alternative investing style, given the combination of your circumstances and your psychology.
- Are you investing for the maximum return?
- Are you investing to diversify your investments?
- Are you investing for reliable income to pay bills?
- Are you investing as entertainment (trying your hand at Shark Tank)?
- Are you investing to support a cause or a specific brand?
- Are you speculating on an industry or the next big technology?
- How do you feel when your investments decline in value (even if only temporarily, and only on paper)?
There are at least as many combinations of investment strategy and alternative investing style as species of animals on the savannah, but at a high level it can be useful to think about your investing along the following spectrum. This can help you narrow your choices and find the alternative investments (and investment amounts) most likely to suit not only your goals, but your personality as well:
Alternative Investing Style #1: Carnivore
When investing like this, you’re out for blood. You want the maximum return on your investment, and are comfortable taking on a high amount of risk. You probably enjoy the excitement of the deal, and even if you don’t like the swings, you understand that volatility is part of playing the game.
- Angel investing
- Long-duration, but potentially high-return equity investments in commercial real estate, where the bulk of the return depends on appreciation and resale
Alternative Investing Style #2: Herbivore
Here you’re on the opposite end of the spectrum. Grazing like a zebra, you take great comfort knowing the cashflow checks are going to keep coming in every month. Serial entrepreneurs, those working on commissions in volatile markets and industries, and retirees are often found among those who can’t rely on a steady paycheck, so are looking for investments to provide steady income to help pay bills.
- Secured short-term (12-36 month) loans with regular payments
- Rental properties
Alternative Investing Style #3: Omnivore
Somewhere in between are the omnivores. You like the thrill of the occasional hunt, but sleep better knowing you can always pick some berries in a pinch (I may be nearing the limits on this metaphor…). Here you’ll often find folks with a solid retirement account in vanilla index funds (and probably a steady paycheck) but who are looking for some diversification and maybe even some excitement and the chance to place some careful bets with “risk capital” (those with deep expertise in a particular industry may well be better than any VC at evaluating startups in that space).
- Angel funds with built-in diversification
- Private REITs
- Reg A+ “mini-IPOs”
Alternative Investing Style #4: Locavore
If you’re a locavore investor, it’s about more than just the (metaphorical) meal. Maybe you want to literally support local businesses, and are just as happy to fund a loan or buy some stock as to be a customer. Or maybe you want to help support clean energy projects or encourage different kinds of real estate development in your community. The motivations here often aren’t that different from traditional philanthropy, donation-based crowdfunding, or just voting with your dollars — but crowdfunded investing has opened up a wider range of choices.
- Reg CF Investments to support a specific business, brand, sector, or cause
- Funding business loans in your community
Food for Thought
Just as investing strategies will vary from person to person, an alternative investing style will also vary for the same person over time. Job changes, market movements, new children (and aging parents) can all heavily influence both your circumstances and your psychology. In practice, most people end up with a mix of the approaches outlined above, a mix that will change over time.
One of the best things about the emerging and evolving ecosystem of online crowdfunding and alternative investing is that it’s never been easier (or cheaper) for a zebra to try out being a lion (for example, by taking $100 and investing in a few startups), or for an omnivore to start getting comfortable eating the zebra’s tall grass before they need to depend on it (for example, by learning how to understand real estate investments).
Now if you’ll excuse me, for some reason I’m in the mood for a snack and then a nap.