Business & Real Estate

Extremely alternative investments

Stock prices continue to set records. Bond returns are the lowest they’ve been in decades. Real estate has been upended by the pandemic.

Where can an investor find decent returns anymore?

You could try established alternatives such as commodities, gold or collectibles if you believe they’ll provide better returns than stocks and bonds. You also could look to what I call extremely alternative investments. These are new investment schemes – or variations on old ones – that inevitably crop up from time to time. Following are a few of the latest.

• Bitcoin. First there’s Bitcoin, the 21st-century high-tech version of currency/precious metal investing the media has hyped at length. Who is not at least cursorily familiar with it? Less well-known are the several thousand other cryptocurrencies that are also available for purchase or use. Many have almost no trading volume, but some are nearly as popular with investors as Bitcoin.

• Collectibles. The collectibles market also has undergone a significant democratization, thanks to the growth of online auction sites as pioneered by eBay. These days, small investors as well as wealthy ones can compete at auction online for artwork, that first-edition Beanie Baby or even a new Steph Curry-designed sneaker.

• Non-fungible tokens. But the undeniable star of tech-driven collectible investing has to be the non-fungible token, or NFT. It is proof of authenticity and ownership of a digital asset such as an image, video, song or virtually (pun intended) anything in digital format. For example, whoever owns the NFT for the digital image “Everydays – The First 5000 Days,” created by the artist Beeple, can assert that his or her copy of that digital artwork – though identical to all the other copies floating around on the internet – is actually the original. Think NFTs are worth investing in? Somebody actually plunked down more than $69 million for that particular one. And of interest to Bitcoin aficionados, it’s blockchain technology that’s being used to validate NFTs.

• Special-purpose acquisition companies. It’s not just technology that drives investment innovation, though. Merger and acquisition investing through special-purpose acquisition companies (SPACs) exploded in 2020. SPACs are publicly traded companies whose sole purpose is to use investor money to acquire (technically to merge with) a privately held business, effectively replacing investment bank underwriters and the traditional initial public offering process. Because few investors have the opportunity to participate in IPOs, SPACs are an alternative way for them to invest in late-stage startups ready to go public.

These vehicles have been around since the 1990s, but it’s not until recently that SPACs have managed to raise serious investor money. According to Wikipedia, in 2019 there were 59 SPACs collectively investing $13 billion in IPOs. Last year that figure soared to 248 SPACs with a total IPO investment valuation of more than $83 billion.

I have not personally invested in any of these alternatives – nor am I promoting any of them as viable investment opportunities. In the future, I may delve more deeply into those I believe have promise – or, conversely, report more on ones that I think make no sense whatsoever.

For the present, the level of due diligence you should apply before putting your money into any newfangled, esoteric alternative investment far exceeds what’s needed for more traditional choices such as stocks and bonds. Good luck out there.

Los Altos resident Artie Green is a Certified Financial Planner and founder of Cognizant Wealth Advisors. For more information, email [email protected]
cognizantwealth.com or visit cognizantwealth.com.

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