Alternative Investments

Here’s What’s in Our “Crash-Proof” Portfolio

55 0

Have you ever wondered what Wall-Street-phobics invest in?

Exactly how does the non-traditional crowd construct a portfolio that includes something other than yawn-inducing IBM and similar blue-chips?

Figure 1: Won’t work in vending machines, but fits nicely into alternative portfolios

This decade has seen the rise of alternative investing, and the practice is becoming so popular it might just eclipse the old-school stuff by 2025 or thereabouts.

With the advent of international index funds, oddball ETFs, and intense interest in hard assets like metals, collectible cars, investment-grade art, fine wine, and rated-and-graded diamonds that trade like pricey baseball cards, the financial world is exploding with possibilities.

What might an off-the-grid investor put into a fireproof portfolio these days?

There are literally billions of answers to that question, if you’re really into mathematical combinations. But we’d like to keep things simple.

Here’s our idea of a semi-logical, pseudo-reasonable, level-headed alternatives portfolio.

Just to cover all the legal bases, remember that the following is not investment advice, but just an example of a savvy alt portfolio for those who want some spice in their investment life.

Cryptocurrencies

In the past five years, cryptocurrencies like Bitcoin and Ethereum have been gaining in popularity.

These somewhat new forms of investment and money aren’t created by private or national banks, but are dependent on blockchain technology.

It’s digital money, in its barest form, free from any type of government interference, with an “economy” that is regulated by a peer protocol via the Internet.

Each piece of currency consists of a string of encrypted data.

The best part of it is this: you don’t need to understand the tech involved to buy it. Just remember that it’s really new, volatile at times, and is not controlled or backed by any government. But, boy oh boy, is it popular! 

How to get in on the crypto action: Many enthusiasts enter the cryptosphere (who wouldn’t want to be a part of something with a name like that?) by purchasing some amount of one or several of the most traded cryptos on the market.

A typical crypto portfolio contains perhaps three of the biggies in this realm, like Bitcoin (BTC), Ethereum (ETH), and Litecoin (LTC).

Coinbase.com is one of the most respected exchanges where buyers and sellers meet for transactions. Right now, there are no exchange fees when you take part in a transaction. That might change as the crypto market continues to explode, so keep an eye out for future fees.

It’s a no-rules crypto world: There are no rules when it comes to investing in cryptos. Typical investors who want to add these newfangled forms of money to their portfolios often treat them like speculative precious metals, maintaining no more than 2 or 3 percent of an entire portfolio in cryptos.

One way that’s gaining popularity is to split up a crypto investment into three chunks based on market capitalization of the currencies you select.

For example, if you want BTC, ETH and LTC, and you intend to put a total of $5,000 into the mix, that would result in 70 percent ($3,500) in BTC, 17 ($850) percent into ETH, and the remaining 13 percent ($350) into LTC.

Revenue-Sharing on Private Crowdfunds

Crowdfunding is one of the newest and most attractive ways for alternative investors to take part in direct profit-sharing of startups and other small or newer entities.

As opposed to buying equity shares that may never pay a dividend or become tradable, taking part in revenue-sharing is a smarter way to guarantee at least some regular cash flow from a company that’s making money.

Getting in on the action:

Most prospective investors use a site like Crowdfunder to explore the thousands of choices available in the rev-sharing, crowd-fund universe. Look for companies that have at least a semblance of public financial data available so you can make cogent decisions about which ones to invest in. 

Our managing editor has invested in two startups this way. One a Ben & Jerry’s franchise on the Venice Beach boardwalk offering 14% and Napa Valley Distillery paying a 1.5x multiple on the investment. Pretty cool.

Baby-Bonds, aka Exchange-Traded Debt Securities 

Okay, so this is technically a Wall Street creation, but at least it’s unusual and allows small investors to take advantage of what the big bond-holders are into.

Here’s how baby-bonds work:

Also known by their tongue-twister name, exchange-traded debt securities, baby bonds are not traded on the bond markets but on the stock exchange, and they have maturities of anywhere from 10 to 30 years. They pay quarterly interest and sell in increments of $25, making them extremely accessible to the average investor.

One thing to remember: Avoid buying “babies” (as the in-crowd calls them) that are close to maturity (this has nothing to do with Justin Bieber).

via GIPHY

But seriously, babies nearing their maturity date are often bought up by the issuer and you’re left with cash and accrued interest, sitting back at square one, in search of a solid baby bond.

How to find and buy baby-bonds:

There are plenty of places to find lists of attractive babies online. Here’s one example. Note that 8 percent yields are among the higher interest notes in the world of babies, with a few recent 8-percenters being DSXN, TANNI, and COWNL.

As is the case with crowd-fund revenue shares, you’ll have to do some research on the companies behind each baby bond, but in almost all cases, they will be very established corporations with long track records. About 90 percent of all current baby bonds take 30 years to mature. Real babies grow up much faster but don’t pay quarterly dividends, so it’s a tradeoff of sorts.

Parting Thoughts on Crash-Proof Portfolios

One of the neat things about a portfolio like this is its news value.

When you have some of your hard-earned funds in cryptos, nary a day passes without a gigantic headline about one of the new currencies taking off into the profit stratosphere.

The same goes for the baby bonds and whatever private crowdfund rev share you’re into. Alternative investors often become news hounds as they check the feeds for stories about those micro companies and baby-bonds.

Welcome to the hyperactive world of alternative investing and the ever-unpredictable cryptosphere!

>