If you’re feeling a little seasick from this week’s declines, you’re certainly not alone – the market just had its worst week since 2008’s Great Financial Crisis, with the Dow dropping a gut-churning 12%.
There will always be weeks like this in the stock market, and they’re good reminders of why it’s important to diversify your portfolio, ideally into the kinds of assets that don’t move with the stock market.
Alternative assets have long been a critical part of the investment strategy for the wealthy and for institutions like university endowments. They’re used both to diversify risk away from stocks and bonds and into things like real estate, as well as to add the potential of big gains from exposure to things like venture capital.
Here’s a few of the kinds of alternative investments to consider if you’re looking for something unlikely to move with the broader market:
- Venture capital. It seems a bit counterintuitive (since startups are operating in the same economic environment as public companies) but research shows that venture capital returns are almost totally uncorrelated with stocks (a coefficient of 0.04%). If you’re thinking about investing in startups, we’ve rounded up our list of 5 of the Best Equity Crowdfunding Sites for Beginning Investors, all of which offer at least some investments for non-accredited investors.
- Fine Wines and Art. Another asset class that doesn’t tend to move with the market, new platforms like Vinovest and Masterworks offer anyone the opportunity to invest in fine wines (you actually own the wine bottles, which Vinovest stores for you) or fine art (you have a fractional ownership of a Warhol or a Banksy, also conveniently stored for you :)
- Litigation Finance Although limited to accredited investors, litigation finance investments have no correlation with public markets so are a great choice for a portion of your alternative investing portfolio. I’ve invested using LexShares, and earned a 30% IRR
- Performance Royalties Another interesting alternative asset class is performance royalties, in which you buy the rights from artists for the royalties they receive for their music (in the case of Royalty Exchange) or video game sales (in the case of Fig).
- Real Estate Here the correlation gets a bit trickier, as there can be close connections between, say, the commercial real estate market and the overall economy (for example, office space could be had for quite a bargain in San Francisco after the dot-com crash), but it’s also true that tougher economic times usually mean more renters stay renters (and some owners become renters). Platforms like Roofstock make it easy for any investor to buy a single-family rental property, including property management services and in some cases even a rent guarantee. And since no matter what happens in the market, everyone’s gotta eat, you might consider a platform like FarmTogether, which offers fractional investments in US farmland.
You can find many more choices for in our database of online crowdfunding and alternative investment platforms.
It’s Also Bargain Hunting Time in the Stock Market
Warren Buffet’s been quoted as advising investors to be “Fearful when others are greedy and greedy when others are fearful,” and if you take that to heart that means this could be a great time to buy stocks while they’re cheap.
If you’re looking for some bargains in the stock market off the beaten path you have two days left to sign up for StockSpinoffInvesting at 25% off with discount code “yieldtalk”. In addition to classic spinoffs, you can find advice on other “special situations”, like a very timely recommendation and instructions on how to short the stock of a manufacturer of medical face masks, which has spiked stratospherically, just as it did (temporarily) during the SARS and Ebola outbreaks in recent years.
Deep Breaths, Everyone
Weeks like this are scary, there’s no doubt about it. But they’re also inevitable in a world as complex as the one we all live and work in. Many very wealthy people have managed to remain very wealthy through good and bad markets in part because they don’t keep all of their eggs in one basket. There’s a place for alternative investments of one kind or another in just about any portfolio, and fortunately everyday investors have more options for doing that than ever before.