Don’t put all your eggs in one basket. We’ve all heard the saying: So, why are so many people ignoring that advice? When you put all your investable capital into the stock market, you’re putting all your metaphorical eggs into the stock market’s basket. The only way to truly diversify your portfolio is to explore alternative investment vehicles.
Whether you’re new to investing altogether or you’ve been investing in stocks and bonds for decades, wading into the pool of alternative investment platforms and opportunities can feel overwhelming. How can you decide which investments are right for you, and which are a recipe for disaster?
Let’s take a look at the top three alternative investment vehicles you can use to diversify your portfolio and build massive wealth.
What Are Alternative Investment Vehicles?
Before we examine the top three alternative investment vehicles you can use to diversify your portfolio and build more wealth, let’s first establish some base knowledge. What is an investment vehicle? An investment vehicle is something that investors use to gain a positive return.
As a car is something you use to get you from Point A to Point B, an investment vehicle is something you use in an attempt to turn investable capital into assets or cash that’s ultimately worth more than the initial investment.
What is an alternative investment? An alternative investment is an investment that isn’t a stock, bond, or cash. The possibilities are nearly limitless, including real estate, cryptocurrency, collectibles, startup businesses, and more.
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An alternative investment vehicle, then, is a structure or method you can use to invest in alternative assets with the hope of a positive return. You can pursue an alternative investment using multiple methods. We’ll talk about three different ones in this post: Fractional ownership, syndications, special purpose vehicles, and multi-owner vehicles.
Fractional Ownership Vehicles
The most accessible route you can take to invest in alternative assets is fractional ownership. Fractional ownership occurs when you own a percentage of an asset. In this method, multiple individuals purchase a piece of an asset, sharing access, profits, etc. depending on the asset in question.
A classic example of fractional ownership is purchasing a timeshare property. In the modern era, you can also use applications like Fractional or Fundrise. Thanks to new crowdfunding-related regulations, you can use platforms like these to invest in startups, real estate, and more with a group of strangers.
You can also use an app like Robinhood to buy fractional shares of traditional investments like stocks starting at as little as one dollar portions of a share.
The pros of fractional ownership include gaining access to deals or properties you may not have the funds to access solo and decreased risk. When you purchase only a percentage of an asset, you are spreading the investment risk among the entire group of investors rather than holding all that risk on your shoulders alone.
However, fractional ownership comes with a number of downsides. You may have trouble getting financing assistance for a fractionally owned property, as many banks don’t provide mortgages for this type of purchase. You also have less flexibility and freedom with the investment, as you don’t truly own the asset and you likely don’t have any relationship with the other parties involved in the investment.
Syndications and Special Purpose Vehicles
Your second option for an alternative investment vehicle is a heavily regulated entity like a syndication or an SPV. Both of these structures are designed for accredited investors. To become an accredited investor you need an annual income of at least $200,000 or a net worth of over $1 million. If neither of these apply to you at this time, these alternative investment vehicles won’t be the best fit for you.
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Syndications are designed specifically for real estate investments. This type of vehicle is run by professional real estate investors looking to finance a specific project. This professional investor will then invite real estate developers, attorneys, and select passive investors to participate in the opportunity.
SPVs are similar to syndications in that they are heavily regulated vehicles designed for professional investors, however the scope of what you can use your SPV to purchase stretches beyond real estate. The plus side of SPVs is that they can be relatively short-term commitments. You generally form an SPV for a specific deal, so you can exit the vehicle easily once that deal is complete.
The downsides of these structures are numerous. For starters, SPVs are expensive to set up. You will likely pay around $8K to set up your SPV. Additionally, both SPVs and Syndications are subject to SEC regulation, so if you are not prepared to register with the SEC and submit to those regulations, these structures will not be the best fit for you.
Multi-Owner Vehicles
Your last option for an alternative investment vehicle is a structure we call a Multi-Owner Vehicle, or MOV. Coined by Tribevest, an MOV is an alternative investment vehicle that allows partners to pool funds and invest in any number of assets as a business entity.
Non-accredited or accredited investors looking to invest with friends or family members can easily use a MOV to these ends. An investor of any level of experience or knowledge can lead a MOV.
Some benefits of MOVs include simplicity and speed. MOVs are easy to set up and quick to get started with. They are also inexpensive. You can start your MOV through Tribevest for no more than a subscription fee and an LLC filing fee. Check out our features and pricing page for more details.
The largest downside of MOVs is that all partners in your MOV need to be active. You cannot accept capital from passive investors or limited partners if you’re using this structure.
However, if you’re looking to have fun, share knowledge and experience, and build wealth with friends and family, an MOV might just be the perfect alternative investment vehicle for you.
Alternative Investment Vehicles: Which is Best?
Leveraging alternative investments is an incredible way to diversify your portfolio, spread risk, and create additional income streams. But as we mentioned, the hefty price tag associated with these types of assets can make them more difficult to obtain without an appropriate alternative investment vehicle.
Fractional ownership and private markets like SPVs have their advantages. Still, if you’re simply looking to come together with friends to invest in a new asset as a group, a multi-owner vehicle is your best bet.
Form a partnership with friends or family members and pool your capital to access high-return investment vehicles like real estate, collectibles, etc. You can use the Tribevest group investing platform to establish and file your business entity, collaborate, pool capital, and more. See all the ways Tribevest can help you harness the alternative assets of your dreams by checking out our Features and Pricing page!
