Alternative Investment Rates of Return: The Data
One of the great unknown sides of the alternative investment market has to do with rates of return. Some of the more traditional instruments like precious metals and real estate are easier to calculate than newer or more unusual assets like fine wine, art works, diamonds and collectible cars.
Note: In many cases, the rate of return on a given class of alternative investment will be expressed as a wide range, like “between 10 and 50 percent” because many markets don’t produce enough data for solid rates to be determined.
Here are some of the more common alternative asset classes and their rates of return, based on various authoritative sources:
Peer-to-peer lending: Returns are between 8 and 25 percent, according to a recent poll of investors in the market. Note that while defaults are rare in this field, it is possible for an investor to lose the original amount put into the instrument.
Private mortgage financing: 10 to 12 percent, with very low risk of default.
Direct investing in startups: Minimum of approximately $3,000 entry, with the possibility of either losing the entire investment or making returns in excess of 1,000 percent.
Fine wine: One of the trendiest of the alt asset class, wine collecting (and investing) is currently enjoying a boom, with savvy investors netting between 7 and 25 percent, long-term, on select, top-level wines.
Collectible gold coins: Though experts tend to shy away from this category in favor of gold bullion, devotees have seen long-term returns in the area of 5-20 percent, depending upon the specific coins.
Diamonds: One of the newer alternative investment categories, diamond cuts and sizes are now becoming standardized and traded on several national and international markets, with indices showing yearly returns between 0 and 20 percent.
Real estate: Diversified real estate investments, as a class, typically outperform the S&P, with returns in the 8 to 15 percent range, on average. This scale is subject to economic trends and legislation as much as any other asset class and can change from year to year.
Precious metals: The most popular and most accessible sector of the alt investment universe, gold, silver, platinum and palladium are suitable for long-term returns, which can be on the order of 30 and 40 percent. Year-to-year, gold tends to be more stable and offers modest returns compared to its volatile cousin, silver, that can display wild fluctuations day to day. Many metals enthusiasts use silver as a short-term, speculative vehicle and gold as a long-term investment.
Collectible cars: For those who know the market and are willing to start out slowly, returns on classic autos can be as high as 50 percent and as low as 3 percent. The entry barrier for this market keeps many out, as the cost of a single car might run into many thousands of dollars.
Oil and gas: With returns anywhere from 5 to 25 percent, the energy sector offers some of the most exciting ways for investors to take part in potentially lucrative returns. The advent of unit investment trusts allows smaller investors to enter this sector, along with numerous institutional players.