With bank interest rates dropping and financial asset valuations hitting the roof, you may be wondering if there are any offbeat investments to protect yourself from the whims and fancies of the capital markets.
Bank deposits, pension schemes, insurance, or probably mutual funds – when it comes to saving money many of us stick to the basics. But how do the rich make their money? 2020 was an eye-opening experience that taught investors the importance of stable returns with risk protection measures.
When thinking of such alternatives it is imperative to avoid scams and get-rich-quick schemes. The term “crash and burn” is real, so it is important to tread with caution and seek investments that generate a stable return over a reasonable time frame.
But are there any viable investment options beyond the ones which we all already know? Yes, here are 5 unorthodox channels you could consider to make your money work for you:
Buy A Business
When it comes to investing, one of the oldest and time-tested options is to directly buy out a business. It is a well-known fact that most rich people built their wealth through business interests. Buying a business outright allows you to eliminate the initial setup risk. Instead, you jump start into a revenue-generating business and can focus on improving the cash flows.
Since the pandemic hit, a flurry of deals has been listed on business for sale websites, mostly driven by the uncertainty in the market. But a savvy investor can see through the opportunity and pick up long-term businesses at beaten-down valuations.
It is important to assess your skills and interests before you venture into this. Buying a business from an industry with prior experience and one that excites you is essential to be able to grow it. This will shorten the learning curve when you take over as CEO of the company. The more you know about the industry, the more value you can add to the business.
Online platforms such as SMERGERS, BizBuySell and BusinessForSale help business buyers find and shortlist the best opportunities matching their requirements. You can slice and dice through the data to find the most suitable businesses which you can take over.
Engaging an attorney and an accountant who is skilled in business acquisitions and similar transactions is an essential step as their expertise will be invaluable in due diligence, structuring the transaction and putting together the necessary documentation required for closing the deal.
Lend on P2P Platforms
The financial markets are not linear. The difficulties that small businesses face to raise loans are exponentially higher than their larger counterparts around the world. A long and complicated application process, accompanied by frequent rejections, deter financially sound small businesses from applying for traditional bank loans.
Today there are several P2P platforms that help businesses bypass banks to raise funds from Peer-to-Peer (P2P) lenders. These types of loans are generally taken for a short period, between a few months to a couple of years, before they are repaid and are used to fund a specific business purpose.
Investors have flocked to such platforms as returns range between 15-25 percent per annum and research shows that P2P lending can achieve 10-fold growth in the coming years. You can protect your downside by diversifying such investments into multiple businesses across locations and industries.
These P2P platforms act as pitching platforms to connect businesses with a community of like-minded individuals interested in lending. In the international market, websites such as Fundbox and Funding Societies operate whereas in India there are licensed platforms such as RupeeCircle, Faircent, etc.
Take up a Franchise
Franchising is fast becoming a popular investment route because it allows investors to enter the field of entrepreneurship at a lower level of risk than starting their own venture. A franchise business would generally have an established brand name with a tried and tested revenue model.
Additionally, the franchise partner can expect support from the franchisor in terms of marketing, training, hiring and operational guidelines. This format is especially convenient for working professionals who wish to add extra business income apart from their monthly salary.
The franchising sector has an overall turnover of Rs.4 lakh crore, contributing 2 percent to the country’s GDP. With every foreign brand lining up to capture the growing consumer class, franchising has witnessed tremendous growth of 30-35 percent over the last five years.
Selecting a franchise would largely depend on your interests and objectives but bear in mind to invest in a well-known brand that caters to the long-term wants of consumers.
Some of the popular sectors which have seen an uptick during the pandemic include open kitchens, warehouses, pharmacies, car washes, etc. One can use platforms such as Franchise Direct, SMERGERS, Franchise India, etc to shortlist brands that meet these objectives.
Invest in Co-owned CRE
Most retail investors think residential properties are the only feasible real estate investments. While apartments and plots were popular ways to invest, this investment vehicle has lost its shine in the last decade and has worsened with the onset of COVID-19.
However, Commercial Real Estate (CRE) has always been a popular asset class amongst HNIs and Institutions. Especially pre-leased and tenanted which generate rent are highly sought after by the wealthy.
These assets not only provide equity-like capital appreciation over the years but also debt-like fixed monthly rents which yield 7-10 percent post-management costs. The cherry on the cake is that it is believed by several investors to be a relatively low-risk investment as it is backed by hard assets.
Even though it is one of the most lucrative options, the average investor has always steered clear of this investment because of the large ticket size, illiquid nature, and the headache of managing the property itself.
However, new age co-ownership platforms such as PropShare, Strata, etc bring together a group of investors who can co-invest with ticket sizes as low as Rs.25 lakhs and acquire premium office and commercial properties.
These players also manage the property on behalf of the investors for a predetermined fee. If coughing up that amount seems impossible, REITs are a great option to explore.
India has now opened up REITs, which are essentially publicly traded units of CRE properties where one can invest from ticket sizes as low as Rs 50,000.
Invest in Start-ups
Start-ups represent a completely new form of business driven by ideas, passion, execution and resilience. They seek initial capital from investors, but, over the years, have the potential to grow into billion-dollar companies.
It is imperative to mention here that statistics show that 98 percent of start-ups fail. It is common knowledge that one needs to be ready to lose his or her complete investment in a start-up as most of them fail.
Having said that, it is not uncommon to hear about several start-up investors who have generated 30x-40x over their investments. More than 500 start-ups have become unicorns across the world with the US, China, UK and India leading the pack.
Accredited investors use platforms such as AngelList, LetsVenture, Tracxn, etc to find and invest in start-ups that demonstrate high growth potential and have some sort of competitive edge like a patent or captive customer base.
The benefits of investing in a start-up are not all financial. The relationship you establish with a start-up can provide an abundance of knowledge, industry connections and many times a sense of purpose for your investments.
Buy Crypto Currencies
This is a highly controversial space with hardliners on both side of the spectrum. On one side you have firm believers like Elon Musk who believe cryptos are the future and have started accepting crypto currency payments for real world products.
On the other side, you have several industry veterans to the government calling it a scam and have also gone to the extent of criminalizing it. But as a neutral investor should you invest in cryptos? Here are a few data points you need to know before you answer that:
Early men used barter system to exchange goods and services, but that soon became impractical, and one had to find a store of value. Gold took over as a store of value and large modern economies got built with this backbone. After a few wars and recessions, countries started linking their currency to the US dollar, as it was linked to gold internally.
Eventually, the US dropped the gold standard, but the dollar’s reserve status remained. But what happens when US decides to just print more and more money? So, the world wanted a new store of value and this triggered the invention of a blockchain (read not regulated by one central authority) based crypto currency during the 2008 financial crisis. And thus, the bitcoin was born.
A $100 investment in bitcoin in the year 2010 would have fetched you 1250 bitcoins. Any guesses what that is worth today? If you had left it untouched, it would be worth a $100 million which would directly put you in the Ultra High Net Worth Individual (UHNWI) bracket!
But… as usual there are risks and it is easy to do this in hindsight. Satoshi Nakamoto, the unknown founder of bitcoin, owns more than a million bitcoins of the 18 million has ever been mined, i.e he/she owns more than 5% of the existing bitcoins. It is believed that the value of bitcoin will plummet when he/she decides to dump it in the markets. The fact that there are more than 1000 crypto currencies in the market which are declared dead, does not instil confidence either.
So, here is the question again: Should you invest in crypto currencies?
If your answer is yes, there are easy ways to do that. Check out apps like Coinbase, Binance and in India there are apps like CoinSwitch Kuber, CoinDCX, WazirX, etc where you can invest small amounts. There are also ETFs like BTTC and EBIT for those who do not want to open a separate crypto wallet.
While there are thousands of crypto currencies, only a handful of them have the required market capitalization or are actively traded in the markets. Do your analysis, shortlist cryptos and invest in those which you believe are worth betting your $100.
If you observe carefully, many of these alternate investment options have existed since time immemorial but have never been marketed or customized for regular investors. Institutions have made the best of these options so far. With the advent of tech platforms, options have now opened up for all investors making it a level playing field.
There are easy-to-use platforms that offer a plethora of options and cater to the risk and return requirements of every individual. If you are done with your regular investment options and seeking further diversification, explore these alternatives and pick the ones which you believe in, to give a boost to your portfolio.
As always, investment advice comes with a word of caution, remember that the higher the return, the higher the risk, but the opposite is not necessarily true.
In a utopian world, even an uninformed investor may strike gold, once, it is quite possible that someone made a killing with just one investment overnight. But any seasoned investor will tell you that investment is a disciplined long-term process where you systematically invest and diversify across several asset classes which put your money to work.
While there are a few bad apples in every basket, that should not stop one from eating altogether.
(Source Credit: Guest Contributor – Mr. Vishal Devnath (Founder of SMERGERS), Edited & Published by Vinod Yalburgi)