By Ben Stamp, guest contributor
The idea of “alternative investment” can be very appealing to a lot of people. The stock market is complex and demanding, and while it still offers lucrative opportunity it can also be thoroughly intimidating.
Particularly among younger people, there is often some distrust in the stock market. (Remember, many young adults today came of working age with market crashes and the Great Recession). And this can lead to people seeking alternative ways to stash and grow their money. This can be a perfectly sound idea, and in many cases it can lead to strong financial decisions.
However, it’s important to approach alternative investment opportunities the right way. While many can be effective, some are too risky to be considered strategically viable. Others require a different set of strategies than managing an ordinary portfolio.
So, while we’re not suggesting these activities need to be altogether avoided, we wanted to point to a few alternative concepts that you should at least approach in a different way than you might ordinary market investment.
Because of constant coverage of small business and young adult entrepreneurism – as well as possibly thanks to the television show Shark Tank, which made millions more literate in the concept of venture capitalism – the idea of venture crowdfunding has become very trendy. As of last year, about one year into this phenomenon, Wefunder was the top platform.
But there are several different platforms that now allow you to invest money in a small business you otherwise have no contact with. Returns for successful investments vary depending on the platform and the company, but the idea is to put a little in and get more back. It can be a perfectly fine way to invest, but the key difference is that you’re projecting something brand new.
In market investment you have industry trends and chart patterns that can inform you, not to mention expert opinions. With venture crowdfunding, you’re more or less on your own.
If you’ve been looking into modern means of alternative investment, chances are you’ve probably come across Acorns, which is a very creative little app aimed largely at millennials. Often counted among a handful of apps that allow for simple, low- or no-fee investment (like Robinhood and Stash), Acorns is actually a little bit different.
While it does involve putting your money in the market, it does through so portfolios put together by the program, and it uses only your spare change from digital transactions. So basically it’s a way of siphoning off little bits of your finances into a sort of digital mutual fund in which your only decisions are how much to invest and whether to go for a riskier or more conservative portfolio.
Acorns is worthwhile, but you should approach it with a wholly different attitude than market investment. This is more a way to earn a little bit of easy side income than any kind of lucrative long-term income or financial protection.
Betting and investing are often compared, and in many respects they’re more or less the same. And for many, including those in the U.S., this is about to become more of a day-to-day option.
Once largely illegal in the U.S., sports betting is now being legislated in a few states like Mississippi and Pennsylvania, with others expected to follow suit by 2019. It’s going to be a big new business in which millions participate with the hope of earning side income on strategic speculation.
That may sound just like investing, but the truth of the matter is that there are more variables and a higher degree of unpredictability in sports betting. So while it can be a worthwhile activity for fun (with some hope of gain) or with a very conservative approach, it’s unwise to think of it as a real investment opportunity.
Somewhat like venture crowdfunding, the idea of peer-to-peer lending (or P2P lending) is also something that’s been modernized with some appeal to younger professionals. Defined as a method of debt financing that enables people to borrow and lend without a financial intermediary, it’s actually sort of a perfect practice for the internet and app economy. You can basically be matched up with someone who needs a loan for a given purpose, and who will in theory pay you back with interest.
There’s always some risk involved, however, and as with venture crowdfunding you’re walking in somewhat blind as far as analysis and projection goes. In other words, this can be a reasonable way to invest, but it’s another alternative method that’s ultimately very little like stock market investment.
Disclaimer: This article is for educational purposes only. It is not providing any specific investment advice or recommendation to buy or sell specific securities. Investors in financial assets must do so at their own responsibility and with due caution as they involve a significant degree of risk. Before investing in financial assets, investors should do their own research and consult a professional investment adviser.