There are many ways to invest as a physician. Some come in traditional forms like stock market investing or real estate. But what about wine?
However non-traditional it may seem, investing in wine is a great way to diversify your portfolio. Who better to share about what this type of investing entails than Vinovest, a team of world-class wine experts.
I know you'll enjoy this guest post much like your favorite glass 🍷.
The recent dips in the stock market may have you wondering if investing is really the best way to build wealth. It can be challenging to know what to invest in, especially if you have a low-risk tolerance. However, investing your money is an important step to take when working towards financial freedom.
Let’s face it — it’s inevitable that the market will fluctuate over time. To offset these lows, you must have a diversified portfolio. Each investment type will react differently to an economic event, which results in less volatility than if you were invested entirely in stocks.
There are many alternative investments to choose from that can be a great addition to your financial plan. Use them to keep your money invested for your goals rather than sitting in a low-interest savings account that barely keeps up with inflation. Your wallet, and your loved ones, will thank you later.
What is an Alternative Investment?
An alternative investment takes a different form than what you would typically see of stock, bonds, cash, mutual funds, or exchange-traded funds (ETFs). Your money is given to a management team that invests in many different types of industries.
Here are a few examples:
- Private equity
- Venture capital
- Real estate
- Hedge funds
- Commodities (such as gold)
Alternative investments may differ from what you are used to. For one, not everyone can invest in them. You have to meet certain requirements such as being an accredited investor. Fortunately, most doctors qualify as one after two years of attending salary. They can also have high minimums, fees, and transaction costs. Additionally, alternative assets are generally not regulated by the SEC, are considered illiquid, and require your money to be tied up for extended periods of time.
For these reasons, it’s essential that you carefully consider your comfort level with these differences before investing in them.
Who Should Consider Alternative Investments?
Everyone should diversify where they invest their earnings, which makes alternative investments a great option. While there are more alternative investments made available to the general population all the time, like Vinovest and crowdfunded real estate, others have criteria that you must meet before being eligible to invest.
As mentioned previously, many are only open to accredited investors or institutional investors. The income threshold is at least $200,000 for individuals and $300,000 for a couple. There also must be evidence to support that the person expects to maintain this income going forward. If the income requirement isn’t met, there is another chance to qualify by having a net worth of at least $1,000,000, excluding a personal residence.
Do some research to see what the restrictions are, and check out the alternative investment options below that are available to everyone.
How Much Should I Invest in Alternative Investments?
Many factors affect how much you should invest in alternative investments. The short answer is that it depends on what you’re looking for.
You’ll need to consider your risk tolerance, time horizon, and asset allocation. But if you want it to have an impact, experts say that you’ll need a minimum of 10% to 20% overall.
Risk tolerance represents how comfortable you are with market fluctuation. This market can apply to many different industries. Some investments will be high risk, while others will be moderate or low-risk.
When you’re young, it’s typical to take on more risk in your investments because you have the time to make up for any potential losses. You also have more time for the volatility to work in your favor and partner with the power of compound interest. In this case, a young investor may choose to invest a more significant percentage of their wealth in alternative investments.
Inversely, those who are nearing retirement may opt for safer, more liquid investments because they need to rely on the money being there for their livelihood. Optimizing for lower and guaranteed returns tends to be the balance here. In this case, an older investor may choose to invest a smaller percentage of their wealth in alternative investments.
At the end of the day, how much you should allocate towards alternative investments ultimately depends on your personality and what lets you sleep well at night, despite your age.
There are many different investment goals that a person can have. Some will have a short-term time horizon (less than a year), while others will have a long-term time horizon (1 year and more). For instance, someone may look to invest their money to buy a new car in six months while another may open a 529 plan for their five-year-old child.
Not all alternative investments are liquid, so it’s crucial to find the one that aligns with what your financial goal is. You don’t want your emergency fund to be tied up when you need it due to it being held in an illiquid alternative investment. The amount of money you put into an alternative investment should greatly depend on when you need to use it.
Your asset allocation will also play a role in what alternative investments are appropriate for you and how much money you invest in one. Similar to the perspective on risk tolerance, you should set an asset allocation before picking your investments.
If you find that an asset allocation of 60% stock / 20% bond / 10% cash reserves / 10% alternative investments is suitable for your situation, make sure to keep that in mind as you are making your choices. You should not allocate wealth greater than that percentage to each asset class.
What Are The Best Alternative Investments?
If you’re looking for the best alternative investments that are available to the everyday investor, check out the five options below. They’ll help you get your money appropriately diversified so that you can stay invested.
Real estate can be a lucrative investment, and there are many different options to choose from. You can rent or flip houses, or even eliminate the hassle by investing in real estate crowdfunding sites like DiversyFund or EquityMultiple.
Just consider your options carefully because you’ll need to secure funding or save up a substantial amount of cash to buy and flip houses. Many crowdfunding sites have low minimums to give the average investor a chance to get involved.
Fixed-income alternative investments may be more your style. If that’s the case, check out YieldStreet. They have many offerings that appeal to the average investor as the minimum investment is typically $10,000.
Here are a few of the investment types you’ll find with YieldStreet:
- Litigation finance
- Real Estate
- Consumer and commercial financing
They pride themselves on their innovation, low stock market correlation, and the ability to invest in assets backed by collateral. YieldStreet offers investments that range in duration from six months to five years. There are so many options that you’re bound to find something that suits your needs.
Have you ever considered investing in wine? Yes, wine is a lucrative alternative investment that many people haven’t considered. Over the past 20 years, wine has actually outperformed the S&P 500 by 1000%. It is very stable during market downturns too, which makes it an appropriate addition to any portfolio in the current economic environment. During the 2008-2009 Recession, when global equities plunged 52%, the fine wine index only went down 9%
is one of the most unique alternative investments as it’s available to all types of investors at a minimum investment of just $1,000. They consider themselves to be the world’s leading wine investment platform. You can sign up in only minutes with the help of Vinovest
’s Master Sommeliers. Plus, who doesn’t love fine wine, right?
So, how does it work? First, their experts take all the work out of choosing the best wines to invest in due to their rigorous training and technical algorithms. When you invest your money, you’ll own individual bottles as opposed to investing in a fund, and Vinovest will safely store and age it for you at their state-of-the-art facilities with the equivalent of FDIC level of protection for your wine. But, you can access your wine anytime online as well as have the option to get it delivered to you if you’d like to drink it one day.
is such a great passive, long-term investment because wine ages and gets better over time. The price appreciation makes it an exciting investment to add to your portfolio!
If you want to expand into economic goods or services, commodities are your type of investment. In layman’s terms, they are raw materials and agricultural products that can be bought and sold. They are tangible items that you will commonly recognize rather than just pieces of many companies like index funds.
Commodities fall into four categories: metals, energy, livestock and meat, and agriculture. Here are a few specific examples, but this is certainly not a comprehensive list:
- Precious metals
- Crude oil
- Natural gas
Commodities are an appropriate alternative investment for those who want to diversify their portfolio long-term, especially if the market is volatile because commodities move inversely to stocks. Their performance is driven by supply and demand in the economy. You’ll often find people scrambling to transfer their money into commodities in a bear market, as well as to hedge against high inflation and currency rates.
You may wonder how you can invest in commodities. Well, surprisingly, they’re available for trade on a multitude of global exchanges.
Fine Art Collection
Have you ever thought about fine art as an investment? Many people don’t because they believe it’s reserved for the rich, but it was named one of the best investments in 2018. It’s definitely not the typical way to invest.
However, there are a variety of ways that you can get involved, such as buying well-known pieces, accessing private art funds, or investing in new artists. There is even a crowdfunding platform for it that lowers the barrier to entry for the average investor.
Invest in the Stock Market Too
There are so many options when it comes to alternative investments. Crowdfunding, real estate, YieldStreet, Vinovest, commodities, and fine art don’t even break the surface. However, they are some of the best alternative investments that an average person can invest in.
Alternative assets are a great way to diversify your investment portfolio according to your financial goals. Just make sure that you consider your risk tolerance, time horizon, and asset allocation when making a decision.
You’ll also want to factor in shares of stock or stock index funds for a well-rounded plan as well. Even though the market is volatile, remember to stay the course. History shows that the market always comes back over time. You don’t realize the loss until you sell!