Everyone wants to find the best investments. That's a natural thing to want.
However, it isn't that simple. Are we looking for the best investments for the long term? The best investments right now or for the next couple of years? What's the risk of either of these choices?
That's what we want to explore in today's post.
The stock market has a lot of people spooked right now. The massive swings from day to day, week to week, and from quarter to quarter are more than many people can take. The second quarter of 2020 is a perfect example.
Take a look at some of the returns:
- February 12 to March 18, -27%
- March 4 to March 11, – 12%.
- On March 12, the index fell by -9.5%. That one day drop was the largest since 1987
That volatility was enough to drive many individual investors out of the market entirely. Others sold large portions of their stock holdings.
Then things got much better. From the March 18 low to June 3, 2020, the S & P 500 gained 31%, erasing all of what it lost. In the second quarter of 2020, the S & P 500 increased by 20.54%. For the year, it's down -3.09%. That's enough to make even the strongest stomachs queasy.
The truth is that these kinds of swings are now the norm in the stock market. As is always the case, information about the economy, earnings, geopolitical events, and many other factors can have a dramatic short term effect on stock prices. Diversifying your investments has never been more critical. Those who have the right mix of stocks, bonds, cash, and alternative investments do much better in the topsy-turvey markets of today.
For those who feel like they lost more than they thought this year, I want to offer some investments to help you better diversify your portfolios. Doing so may help you stay invested in times like these.
Table of Contents
We have talked about how alternative investments are a great way to dampen risk in a portfolio.
Much of what we'll talk about in this post we've discussed in previous posts. However, we've found some additional options we think worthy of consideration. The SEC calls these investors accredited investors.
The idea behind the rule is that accredited investors (the wealthy) are more sophisticated and can afford to take more risk that comes with some alternative investments.
To be fair, we want to offer our thoughts on the best investments right now for both accredited and nonaccredited investors. Some of these we've mentioned before. Others we have not.
Please keep in mind that what we focus on here are investments to help you diversify your portfolio. They are those that are not tied to the stock markets and will not move in the same direction at the same time (noncorrelated).
With that background, let's get started.
Finding the Best Investments Right Now
We will break these down into categories. There are many choices in each category. We will highlight some we feel are unique and some that trade publicly and are readily available.
Real Estate Investment Trusts (REITS)
REITs are a familiar investment people use for diversification. There are public and private REITs.
Some REITs invest and almost any kind of real estate. Some specialize in a specific area. Others diversify across many types of real estate.
Publicly Traded REITs
There are dozens of publicly-traded REITs on the market. By publicly traded, we mean that anyone can purchase them, and they are available on a public market exchange. The most common are mutual funds or ETFs (exchange-traded funds).
We like REITs that are low cost and that mirror a real estate index. Indexes capture the returns of all the securities within the index. They are passive investments. That means they do not have a fund manager picking which stocks to buy and sell.
Here are some to consider.
Vanguard Real Estate ETF (VNQ)
VNQ is an ETF that invests in a diversified portfolio of REITs that invested in real property and the types of real estate (office buildings, hotels, etc.) The goal of VNQ is to closely track the return of the MSCI US Investable Market Real Estate 25/50 Index. In doing so, the fund invests in the REITs included in this index. It has a low expense ratio (0.12%) and has 183 holdings in the fund. It's a great low-cost option to diversify into real estate.
REET is a global REIT, meaning it invests in real estate inside and outside the U.S. The real estate in REET mirrors the FTSE EPRA Nareit Global REITS Net Total Return Index. Like VNQ, the iShares Global REIT has a low expense ratio that comes in at 0.14%, slightly higher than VNQ.
Though average annual returns lag other REITs, most of that is due to negative returns for 2020. Except 2018 which showed a loss of -4.89%, yearly returns since its 2014 inception are positive. The best year's performance was in 2019, with a gain of 23.89%.
Unique Alternative Investments
We found a very unique alternative investment that's available to both accredited and nonaccredited investors. Mythic Markets offers investors the opportunity to invest in fractional shares in rare pop culture collectibles.
Some things you might find in their marketplace are vintage comics, Magic: The Gathering, Pokemon, film & T.V. memorabilia, eSports Teams, and sports memorabilia.
Because collectibles are rare and unique, they do not correlate with the stock market. The result is the chance t own an investment that brings true diversification to your portfolio. Like any alternative investment, investors should limit that percentage owner in their portfolio. Nonaccredited investors can only hold up to term percent in shares.
If you are into collectibles, Mythic Markets may be something to consider. Even if you're not, collectibles might be a good option.
Read our detailed review for more information.
If you are one who enjoys a glass of fine wine now and again, consider that the wine you drink might be a good investment. Vinovest offers investors a way to invest in fine wine without having to do the research, store, protect, and preserve the wine. How do they do it? With technology and expertise.
Vinovest is an online platform to allow everyday investors to reach the fine wine investment field, an asset class that has traditionally only been available to the ultra-wealthy. On average, fine wine has provided an average return of 11.6% since the mid-1980s. The team at Vinovest measured their portfolios' correlation in the last two market downturns. They found it to be negative, meaning it provided good diversification.
And that's the theme of looking for the best investments right now. We want those that bring diversification and noncorrelation to the stock markets.
Vinovest checks all those boxes. Read our full review to learn more.
Another unique alternative investment is farmland. Most investors would never consider an investment in farmland, thinking they would have to invest a large sum of money. If you're trying to invest in farmland on your own, that is likely the case.
However, we found a great option with a low minimum investment. The company is Farm Together. Though one needs to be an accredited investor to participate, the minimums are much smaller than most alternative investments.
The typical investments range from $10,000 – $50,000 per transaction. That $10,000 number is much more accessible than many of these types of offerings. And there are precious few funds that offer investment in farmland with cash flow.
Real land is less subject to inflation and more stable than many other investments. For one thing, we're not making any more of it. The law of supply and demand means it's likely to increase in value. As a tool for diversifying your stock and bond portfolio, we think Farm Together is an excellent option for accredited investors.
Read our full review to learn more.
The Marketplace to Find the Best Investments
When we think about alternative investments, we try to get outside the box and look for unique options outside of publicly-traded REITs, though we believe they are a great place to start. If you want to do your research to find good choices, there are a couple of ways to go.
First, you can go to our good friend Google and input and search until your heart's content. Many people enjoy that process. My wife is one of those people. Her choice isn't investments, but she can spend hours researching something she's interested in finding. That's not me. I like to simplify things.
That's where option two comes into play. MoneyMade is an online marketplace where investors can look for alternative investment options. They have done much of the research for you. I've talked about them in another article. Here's what we said:
“It's a discovery engine built to help you find and compare all types of investment opportunities, spanning from alternative investment platforms through to Robo Investing.” And it's super simple to use. Just enter the criteria of the investment you're looking for and let MoneyMade do the rest.”
We encourage you to give it a try.
Read our review to learn more.
Today's post is by no means supposed to be a comprehensive guide to finding the best investments right now. However, we hope it offers things you may not have heard of in the past. We left out recommendations on crowdfunded real estate for this post. There have been numerous reviews and articles written about these options. If you'd like to hear our thoughts on those, here is our analysis of two crowdfunded REITs we think merit investment.
It's relatively easy for investors to find index mutual funds and ETFs for the stock and bond portion of their portfolios. These funds provide a good foundation for investors. With that said, to get true diversification, which can increase return and, more importantly, reduce risk, portfolios need noncorrelated assets.
With volatility at a fever pitch and likely to continue, we think the best investments right now are those that add true diversification as described here. Do you have a favorite we've missed? Let us know in the comments. We love learning about excellent investment opportunities.
In the meantime, check out the investments listed here. We hope you may find one that fits your needs.