Here’s a fact to ponder over your morning cup of joe: More Americans start their day with coffee than invest in the stock market. Fifty-two percent
of them sock their money away in savings accounts to languish until they retire.
If this is you, when you finally retire and have enough leisure time to sit for hours at the local café, you just might find your daily java budget dramatically reduced. As CEO and founder of a company that enables people to access and manage alternative investments via a platform, I see this mistake all too often.
Keeping money in a savings account is no way to build a nest egg. These days, the majority of savings accounts pay out at a rate significantly lower than the rate of inflation. You’re probably losing money
in low-yield accounts.
Losing money with a false pretext of safety? Sounds like a raw deal to me.
Be Cautious, Not Afraid
Most people are rightfully afraid of investments; they don’t know much about them. You would likely spend countless hours planning a vacation
that you’re going to invest $2,000 to $20,000 in. But would you give half that time to understand investments — and invest 50 percent of your vacation budget?
If you choose to invest, you’ll thank me in five years, when that year’s vacation is potentially paid for due to the investment decisions you’d made. Instead of defaulting to savings accounts or traditional stock market options, you may see stronger returns with alternative investments.
But where do you start?
First, you have
to pay off your debt. You’ve heard it a million times before — that’s because it’s true. Take a serious look at your expenses, and eliminate all unnecessary purchases
until you’ve cleared your student loans, credit cards, auto loans, and other outstanding accounts.
This article presents a budgeting spreadsheet
for you on a silver platter. Once your personal budget is balanced and you’re free of debt, you can think about looking at alternative investments. Here are three options to consider:
1. Peer-to-Peer Lending and Crowdfunding
In the past, most opportunities for social lending were only available to accredited investors. Today, new regulations have made crowdfunding and peer-to-peer lending investments viable options
for smaller investors.
With peer-to-peer lending, you can lend money to a borrower via an online lending site. These crowdfunding types of investments require relatively low financial commitments of about $5,000
, and they often target 8 to 12 percent returns
These are usually short-term investments (of less than three years), which helps to ensure you’ll earn back your principal, plus interest, without having to worry about the deal souring. The economy doesn’t shift overnight. The 2008 crisis brewed for several years before it impacted the economy.
2. Litigation Finance
Litigation finance, in my view, is a lot friendlier than it sounds. These opportunities empower you to provide people who seem likely to win their lawsuits, but struggle to maintain the financial resources to continue their legal fight, with investments. These investments level defendants’ and plaintiffs’ playing field, promoting equal access to the legal system. Litigation finance can enable a company to stay in business or a person to cover living expenses.
The barrier to entry is lower, too, falling around the same $5,000 mark as online lending; your investments are paid out once the cases are settled. A variety of people and groups utilize this method of financing — including Fortune 500 firms
— because it can cover everything from witness fees to surgeries.
3. Real Estate
The market dictates stock price. If you needed money in 2008, you would have had to sell your GE stock at $8 a share, as it had plummeted so drastically. If you had had a stake in a piece of real estate in a major metro area, however, that carries tangible value that may not drop as much — so you could have sold that asset
to earn back your principal if you needed cash (or created cash flow by renting it out).
Those with the patience and the cash for real estate can do quite well investing in rental properties, vacation homes, and flipping houses. Real estate deals are generally not dependent on the stock market’s performance, so if you own a rental property that generates cash flow, it shouldn’t matter whether the stock market fluctuates, as long as you can hold on to it until the right opportunity to sell it comes along.
These three areas of alternative investing could boost your retirement savings, but remember that high-quality alternative opportunities offer yield profiles of 8 to 20 percent. Think twice about any deal promising more than a 20 percent return, as well as the asset backing it. Can the borrower sustain such a high interest rate? High interest isn’t always a deal killer, but it should be a red flag.
Finally, I think you should always invest with pros. Originators should be experts in their asset classes. If you’re doing real estate, for example, invest with someone who knows the industry inside and out — not your cousin Jim, who dabbles in real estate as a hobby.
Alternative investments make wealth creation more accessible than ever to those who are wary of the stock market. Rather than lose money in savings accounts, consider this new range of investment classes to develop financial stability that carries you well into retirement.
Milind Mehere is a passionate serial entrepreneur currently at the helm of YieldStreet as CEO and founder. YieldStreet uses technology, data, and investment management to empower financial independence for all. Milind has been fortunate to work for industry-defining companies, and he has successfully built and scaled three businesses, one of which, Yodle, was acquired by Web.com for $342 million in 2016. The information set forth herein is not intended to be, and should not be construed as, investment advice. Investing in securities, including alternative investments, involves risk and may result in significant losses. Past performance is not a guarantee of future results.