In the beginning, alternative investments were only available to what most would consider the wealthy. The SEC set the definition of the wealthy with their accredited investor definition.
To be eligible to invest in these alternative investments, one has to have an income of at least $200,000 (individual) or $300,000 (joint) for the last two years.
Additionally, the rule states the investor expects that income to continue going forward. If they don’t meet the income requirement, accredited investors must have a net worth of at least $1,000,000 (exclusive of personal residence).
Let's start with what most consider the traditional investment products – those would be stocks, bonds, and cash. Investors can put money in the U.S. and international markets in both stocks, bonds, and cash. Most investors access these products via mutual funds and exchange-traded funds (ETFs).
The most popular form of investing in these markets is via index funds which are funds that mirror the market.There are no fund managers picking which stocks to buy, when to buy them, and when to sell. Instead, in index funds, investors get all of the stocks in that index (like the S & P 500) at the same proportion each stock makes up in the indexes.
Rather than trying to beat the market, investors take what the market offers. It's a very inexpensive and easy way to invest.
Alternative investments, on the other hand, are not mutual funds, ETFs, or index funds. Instead, the funds have a management team and invest in things that are different from the stock and bond markets.
They include offerings like private equity, real estate, hedge funds, venture capital, managed futures, and derivative products.
Many of you have heard these names thrown in the financial press. In addition to high fees, as mentioned earlier, many alternative investments have high minimum initial investments.
Crowdfunding – The Game Changer
For the reasons mentioned above, innovation has entered the alternative investment arena. As a result, companies began developing investments with lower fees and smaller minimum investments.
Three investments available to non-accredited investors include Vinovest, DiversyFund, and Fundrise. The latter two are crowdfunded real estate funds as described in the last section.
Vinovest:
Vinovest offers a unique alternative investment in assets; one would normally not consider an investment class. We're talking about fine wine.
The first thing to know about investing in fine wine is that it takes knowledge to understand how to choose the right wines.
Fundrise and DiversyFund
Crowdfunding offers a method of fundraising that can bypass Wall Street firms and big banks with their high rates and fees.
In crowdfunded real estate, non-accredited investors now have access to similar real estate investments that accredited investors have always enjoyed.