Christopher Steward, Director of Investments and Partner at Legacy Group Capital.
News coverage on investment revolves heavily around stocks, bonds, real estate and personal saving accounts. They’re considered the traditional, business-minded options for people trying to grow their wealth.
But what if I told you that you could make money investing with your heart?
Though it’s often not the first thing that comes to mind when considering investing, there is a dynamic asset class that goes beyond the conventional: alternative investments.
Why Invest In Your Passions?
Alternative investments, such as real estate, commodities or collectibles, are an enjoyable yet legitimate way to diversify your investment portfolio. These investments revolve around interests and, therefore, investors may be more likely to hold on to them longer than a traditional investment. Here, leading with your emotions can pay off. Experts at Morningstar suggest holding on to alternative funds for at least a decade to accommodate for rolling periods of losses and gains.
Alternative investments are refreshing for investors who have only considered putting money behind what they can easily sell and convert into cash. Buying that antique piece of art you’ve been eyeing because it makes you nostalgic for days past means your ownership is driven by passion, and not on the stability of the stock market.
There are many examples of alternative investments outperforming the S&P 500. For instance, if you bought the 1952 Topps Mickey Mantle card for 10 cents when it came out and kept it in mint condition, you’d have found a collectible with enduring value. If you’re a baseball fan, the card holds a sentimental value, too.
Promoting Positive Change
Comic books, action figures, books, toys, games and more can provide high average annual return rates if you find the right item at the right time. For people more interested in investing in causes than material items, however, another alternative investment exists: socially responsible investing.
Socially responsible investing has become popularized, particularly in the past few years. Investors started backing local businesses, local sports teams and real estate infrastructure programs in their communities, among others, because they knew and believed in these institutions’ missions.
Organizations such as the WNBA are increasingly attractive to investors. Reuters reported in June that the league’s expansion team, the Golden State Valkyries, are the top-valued team at $500 million. Another team, the Indiana Fever, increased in value 273% in one year thanks to the addition of college superstar Caitlin Clark.
Of the booming growth of women’s sports, S&P Global said, “elevation of women’s sports is yielding investment opportunities with relatively low entry-level valuations and high growth potential.” As investors benefit, society does too when beneficiaries use their platforms to create social impact for their own causes—an unanticipated, cyclical advantage.
Alternative investments can be exciting, but they are no outlier in the world of financial decision making. They too have pros and cons, and it’s up to each investor to weigh them carefully.
Pros Of Passion-Driven Alternative Investments
• Lower your risk via longevity: As mentioned, investors may be less likely to part with their passion projects than a regular asset. By holding on, these investors reduce turnover, avoid excessive trading and give returns more room to grow. Research supports this strategy: On average, women consistently outperform male counterparts in investing because of their use of a longer-term approach.
• Build your base: Adding alternative investments, even through partial or fractional ownership of a high-value asset, diversifies and therefore strengthens your portfolio. When one asset flounders, you have the security of others to grab onto.
• Know exactly what you support: You know exactly what you’re investing in when you choose to purchase an alternative investment, which may not be the case with your 401(k) plan, for instance. If you’ve spoken up in support of an athlete, an artist or your favorite coffee shop, purchasing an item or a stake in something that supports them can be a satisfying way to spend your money (while hopefully making some in the process).
Cons Of Passion-Driven Alternative Investments
• Value is subjective: Unlike traditional investments, the value of your alternative investments depends on the opinions of others. More niche items may be a priceless gem to you but hard to resell to others.
• Regulation is minimal: Many alternative investments do not have SEC-level oversight, which can result in a lack of transparency or a higher minimum investment to be a part of one’s hobbies and interests.
• Potential scams: Most of us aren’t collectibles experts, so in this unregulated industry, it can be hard to know whether you’re buying a real, quality asset or if something is dishonorably marked up.
Lead With Your Values, Not Your Investment’s
When you invest in where your heart lies, it allows you to take ownership of your hard-earned money. If you let a financial advisor pick your assets for you who doesn’t share your values, they may invest your money as they see fit (regardless of whether you agreed with the companies they decide you now support).
If you don’t know where to start, take a step back and consider things that make you happy. Your investments don’t have to be extreme. If you want to dip your toe into the world of alternative investing, start by placing a small percentage of your earnings or energy toward something you’re interested in.
The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.
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