Alternative investment suggestions

[kyzymurgist]

I'm looking for some new ideas for my 'alternative' allocation. Although the term is included in this forum topic, I haven't found much discussion on the subject. Do any other forum members have a significant allocation to alternatives? And if so, what do you recommend?

I currently allocate 15% to alternatives and 10% to real estate investments although there is significant overlap so for simplicity, I assume 25% combined. After some recent sales and with the amazing stock performance this year, the portfolio is now out of balance so looking for some new ideas.

Already have enough rental property (or at least all I care to manage). Also plenty in hard money lending although the Pelorus fund has my attention since that is an interesting niche in that space with fairly high consistent returns of >13%.

I want something with expected returns of 8% to 15% with little correlation to the market and of course acceptable risk. Haven't found a suitable Life Settlements, Music Royalty, or Litigation Finance fund that accepts accredited investors so I guess they are out for now.

Considered farmland and timberland investments but the fees are high and the few REITs available are small and have high market correlation. I gave up on P2P lending when the returns dropped too low. There seems to be no good options for individual investment in Reinsurance.

Until I find something worthwhile, I'm parking that cash in BRMK which is very liquid and currently has 8% dividend. But maybe someone here has some good 'alternatives'.

 

[REWahoo]

It has been quite a while but here is a discussion of a targeted alternative investment. I've often wondered how things turned out for those who added these to their AA, and whether the Bolivian or Venezuelan market showed a better return.

https://www.early-retirement.org/forums/f28/run-awayyy-63257-4.html#post1239652

 

[Montecfo]

I would not categorize it as alternative exactly but bank loans look pretty interesting here in a rising rate environment with a growing economy. You can still buy them at a discount though they have narrowed.

FRA is an interesting CEF yielding about 6 percent last I checked and the fund itself is up another 4-6 percent YTD.

There was a Barron's article recently with a table of names.

 

[HolaDEA]

Cryptocurrency

 

[kyzymurgist]

Thanks for the suggestions. I hadn't considered floating rate debt funds. FRA and BGT are worth considering but the 6% dividend is not too enticing and then there is the credit risk. Already have plenty of that with the stock market.

Hard pass on cryptocurrency for now. I was an early believer but bailed out a few years ago when it seemed that cryptos would only be used by criminals and speculators. Huge profit percentage wise but miniscule part of my portfolio at the time unfortunately.

Also no interest in commodity futures or gold that some consider alternatives. An income stream and profits are preferred.

I see Yieldstreet has opened a litigation finance investment but I don't trust that platform with their history of defaults.

 

[gcgang]

Closed end fund GGN provides exposure to commodities with a 9% distribution now. However, I’ve been selling my position, purchased at a 15%+ discount to NAV, as the discount is currently gone. Maybe put on your watch list.

Pretty much all CEFs are selling way below their historical discounts. No bargains.

 

[racy]

https://tinyl.io/4bSF
Something from PeerStreet? You must be a qualified investor, have $2.1+M in net worth, minimum investment $250,000

"PeerStreet is excited to launch a new investment vehicle, Peer Street Credit Opportunity, LP (the “Credit Opportunity Fund”)! The Credit Opportunity Fund aims to provide investors with a new way to invest and diversify their portfolio in alternative assets. The Credit Opportunity Fund will invest in familiar assets, such as Single Family Bridge, Single Family Rental and Multifamily assets, but it will seek to generate higher returns by focusing primarily on distressed and subordinate investments, as well as other opportunistic assets. "

 

[JoshTrent]

A bunch of years ago, I was introduced to a Banker at a local Bank. He was developing Alt Investments for the newly formed Wealth Management dept at said Bank & looking for investors. I invested in promissory notes that the bank was writing, specifically to a locally owned Rent-to-Own store. The note was written at 13% to the shop, my take was 12% paid monthly, and the bank kept 1% for management. The note held the rental items as collateral. I was in for 3.5 years, when I decided to move a different direction.

At the time, they were also offering investments into movie productions, but those were completely speculative. I wasn't in a position to take that risk.

My experience is that alternative investments are found in alternative places.

 

[Hamlet]

Comic books, sports cards, magic cards, collectible whiskey, etc. These are all alternative places to "invest" money.

The trick with them is that a person who knows a lot about a given market and is willing to put in the work to find deals and sell items in various venues has a huge advantage over someone just dumping money into an "asset class".

They can end up looking more like a part time job than an investment if you aren't careful. That is fine if you enjoy the particular market ( and you should, since people investing in collectible markets that they don't enjoy don't do very well, IMO ), but it is still work.

I view these investments somewhat similar to real estate in that regard. They don't lend themselves to truly passive investing.

 

[Koolau]

I guess I look at anything that's NOT an equity, NOT a traditional bond and NOT a traditional bank (or now other) "savings" acct. as "alternative" (at least for me.) With that in mind, my alternatives are Guaranteed Income Funds, I-bonds, SPDAs (and their replacement - always forget the name but they're deferred anuities), gold bullion coins, junk silver, collectibles. None of these has a recent track record in the 8% - 15% range.

My question would be "why 8% - 15%." Great numbers but it would imply a fair amount of risk right now. Do you need the risk to reach your FIRE goal earlier? Just asking because I think of alternatives as just a way to spread risk - not necessarily go for outsized gains but YMMV.

 

[RetireeRobert]

My question would be "why 8% - 15%." Great numbers but it would imply a fair amount of risk right now.

Yes, my questions exactly. Unless you know some places where to get a free lunch, returns of 8 to 15% are going to entail more risk then vehicles yielding 1% to 7%.

 

[RetireeRobert]

Make diversified investments, which will maximize your income. Long-term holding and short-term trading. I am doing short-term gold trading. You can send me an email,

So, are you saying you know where to get a free lunch?

I do agree with diversification and long-term holding.

 

[RetireeRobert]

[mod edit]

I'll pass on the email. Why not discuss your ideas in the forum.

 

[target2019]

I'll pass on the email. Why not discuss your ideas in the forum.

That poster is gone, but very available through gmail, LoL! I am so tempted to write.

 

[kyzymurgist]

Yes, my questions exactly. Unless you know some places where to get a free lunch, returns of 8 to 15% are going to entail more risk then vehicles yielding 1% to 7%.

Valid points Robert and Koolau. I've been retired 8+ years so no need to take outsize risks for FIRE. And 8 to 15% return certainly entails some risk.

However, I consider my bond allocation (mostly TIPS), stable income fund, pension, and future SS benefit for DW and I to be adequate ballast to take more risk in other areas. In fact, we could live fairly well on those items alone.

But I find investing interesting and it's a fun challenge to maximize returns. Similar to optimizing taxes by income engineering for ACA subsidy and perfecting Roth conversion strategy. Lots of us share this hobby[emoji16].

My interest in alternatives is finding sources of income and price appreciation uncorrelated to the stock market which is quite highly valued right now.

In my experience, hard money lending funds and rental properties meet that objective fairly well while also providing good annual returns of 7 - 12% for lending and well over 20% for rental properties. With NO missed payments or rent over the last 7 years including a few stock market hiccups.

P2P lending had similar decent returns for many years and is still an option but no longer worth the risk when I can lend at 7%+ backed by real property with conservative LTV.

And yes, I know the rental properties are not a passive investment. Otherwise, I would own more.

Part of the outsized returns of these investments can be attributed to sacrificing liquidity premium. Too few investors take advantage of this. And yes, like diversification, avoiding the liquidity premium really is a free lunch for that portion of the portfolio that will not be needed for a few years. Some of the higher returns of these investments is probably also due to the lower cost of regulatory compliance relative to publicly traded vehicles. One of my favorite hard money funds went public as BRMK and returns dropped from 12 to 8%.

There are other similar non traded investments that are uncorrelated to the stock market, hard money lending, or real estate. But I don't yet have access to those I am aware of. Still looking.

Thanks for the comments and suggestions.

 

[RetireeRobert]

Valid points Robert and Koolau. I've been retired 8+ years so no need to take outsize risks for FIRE. And 8 to 15% return certainly entails some risk.

However, I consider my bond allocation (mostly TIPS), stable income fund, pension, and future SS benefit for DW and I to be adequate ballast to take more risk in other areas. In fact, we could live fairly well on those items alone.

But I find investing interesting and it's a fun challenge to maximize returns. Similar to optimizing taxes by income engineering for ACA subsidy and perfecting Roth conversion strategy. Lots of us share this hobby[emoji16].

My interest in alternatives is finding sources of income and price appreciation uncorrelated to the stock market which is quite highly valued right now.

In my experience, hard money lending funds and rental properties meet that objective fairly well while also providing good annual returns of 7 - 12% for lending and well over 20% for rental properties. With NO missed payments or rent over the last 7 years including a few stock market hiccups.

P2P lending had similar decent returns for many years and is still an option but no longer worth the risk when I can lend at 7%+ backed by real property with conservative LTV.

And yes, I know the rental properties are not a passive investment. Otherwise, I would own more.

Part of the outsized returns of these investments can be attributed to sacrificing liquidity premium. Too few investors take advantage of this. And yes, like diversification, avoiding the liquidity premium really is a free lunch for that portion of the portfolio that will not be needed for a few years. Some of the higher returns of these investments is probably also due to the lower cost of regulatory compliance relative to publicly traded vehicles. One of my favorite hard money funds went public as BRMK and returns dropped from 12 to 8%.

There are other similar non traded investments that are uncorrelated to the stock market, hard money lending, or real estate. But I don't yet have access to those I am aware of. Still looking.

Thanks for the comments and suggestions.

Wish I could help more, but I am fairly old school and don't get very exotic with where I invest my money. So my pool of personal experience for the types of things it sounds like you are looking for is very shallow. Probably the most "exotic" (out of the ordinary) investment I hold right now is a cumulative convertible preferred stock, RPT-D (series D), a real estate investment trust. I bought it during the Covid downturn last year and locked in dividend percent returns in the teens. Now I have that very nice income stream coming in from it, and am sitting on a gratifying capital gain as well. Even at today's market price, this preferred stock still throws off a "relatively" nice percent dividend. That's the best I can do for "exotic". Hope it helps.

 

[DrBrisket]

Tecumseh Alternatives may be an option. No personal experience with them. Clicked this thread hoping to find out about similar opportunities, but they do seem to be few and far between.

 

[all4j]

I want something with expected returns of 8% to 15% with little correlation to the market and of course acceptable risk.

Considered farmland and timberland investments but the fees are high and the few REITs available are small and have high market correlation.

So, I'm a bit puzzled by high fees for farmland -- would you elaborate? I don't expect you'll find market like returns without market like risk, but farmland would seem to have the best shot in terms of little correlation. Of course, you may be late to that for this cycle. Timber might run 2nd (in terms of correlation.

I appreciate you mentioning Broadmark as I'm not familiar with it. Only briefly looked at it. Are you expecting it to benefit from infrastructure push? I'm not eager to get into typical mortgage reits at this stage myself.

 

[DawgMan]

I appreciate you mentioning Broadmark as I'm not familiar with it. Only briefly looked at it. Are you expecting it to benefit from infrastructure push? I'm not eager to get into typical mortgage reits at this stage myself.

This caught my attention as well. Curious to hear how many folks have used this type of investment as a "place holder" or as part of their investment strategy? I have not taken a dive in yet, but it looks like BRMK has only been around a few years.

 

[kyzymurgist]

I believe Broadmark Capital was originated in 2010 as a non traded hard money lending fund accepting accredited investors. I invested with them for only a few years before they went public as BRMK. Sorry to lose the very steady 1% per month dividends.

They were attractive for having no leverage, extremely low default rate, and low LTV.

Not sure why earnings dropped after going public. There has been a pressure on interest rates in this space since covid. 10% seems to be a good rate now.

 

[LiveBelowMeans]

Check out Business development companies. An etf is BIZD, I like FSK and FDUS they pay 9 to 11%. Jmho

 

[ncbill]

Central Trade & Transfer is where I sold my stinkers of alternative investments (e.g. non-traded REITs) I was sold several years earlier...but since it's an auction site you can also buy there as well.

 

[triangle]

I believe Broadmark Capital was originated in 2010 as a non traded hard money lending fund accepting accredited investors. I invested with them for only a few years before they went public as BRMK. Sorry to lose the very steady 1% per month dividends.

They were attractive for having no leverage, extremely low default rate, and low LTV.

Not sure why earnings dropped after going public. There has been a pressure on interest rates in this space since covid. 10% seems to be a good rate now.

I bought a few shares right before covid hit. At that time I think they had reduced their dividend payment as compared to before becoming publicly traded as BRMK and that the dividend would return back to prior levels soon (after a 2-4 quarters), after some additional income streams got turned on after the IPO. I bought expecting that would happen, but then there was another dividend cut because of the pandemic and I am still underwater on my purchase price as the stock price dropped. I have not sold, but am also not adding as I think they are not covering their dividend with cash flow at this time. I believe I read that they are expecting to recover some delayed income payments from their clients, so that in reality the dividend is covered. But I do not want to be fooled twice. I am not sure how they are affected by the various rent deferment and mortgage forbearance stances taken by different local governments around the country, but all that also gives me pause.

 

[kyzymurgist]

Check out Business development companies. An etf is BIZD, I like FSK and FDUS they pay 9 to 11%. Jmho

Hadn't considered this 'lending' niche other than on the private equity side. Give up some illiquidity premium but less hassle than private equity and easier to diversify.

Could be lower or higher volatility than the market depending on economic conditions. Plenty of risk but somewhat lower correlation to the market overall.

I already own more than market percentage of BDCs given my SCV tilt but a small direct investment in this space may be worthwhile for diversification. BDCs seem much riskier than first lien real estate loans at 60% LTV though.

With free trades now and the limited number of good companies available, it's probably wise to avoid the ETF and just invest directly. Thanks for the suggestion.

 

[youbet]

Wish I could help more, but I am fairly old school and don't get very exotic with where I invest my money. So my pool of personal experience for the types of things it sounds like you are looking for is very shallow. Probably the most "exotic" (out of the ordinary) investment I hold right now is a cumulative convertible preferred stock, RPT-D (series D), a real estate investment trust. I bought it during the Covid downturn last year and locked in dividend percent returns in the teens. Now I have that very nice income stream coming in from it, and am sitting on a gratifying capital gain as well. Even at today's market price, this preferred stock still throws off a "relatively" nice percent dividend. That's the best I can do for "exotic". Hope it helps.

Please excuse the off topic question RR, but I'm curious. I'm finding it hard to see why you use quotes around some words in most of your posts, here and in other threads. Usually someone would do this if they are implying a special meaning to a particular word, but this doesn't seem to be the case in your posts. What's up with all the "quotation marks?" Help us understand. Just want to get the most our of reading your very informative posts.