If you're a novice investor who wishes to own a stake in a novel investment, be sure to conduct ample amounts of due diligence before proceeding. While it's natural to try to beat the market by investing in little-known assets, securities or synthetic derivatives, such investments often carry significant risks. In fact, many of the more exotic investments that attract financial professionals and retail investors can be extremely risky. To make matters worse, even professional investors may be inadequately equipped to assess the risks associated with these vehicles. This can create serious headaches for casual market-makers.
If you're committed to avoiding traditional investments like stocks, bonds, money market funds and mutual funds, you have a wide range of options at your disposal. For starters, you could invest in hard assets like real estate, art or wine. If you're familiar with basic carpentry and painting techniques, you may be able to earn a decent income by purchasing foreclosed homes and fixing them up for resale. However, this involves a significant investment of time and money.
If you prefer to own "passive" investments, notable art pieces or wine collections might be attractive. Unfortunately, these often require outlandish capital outlays and typically aren't liquid. In order to sell art or wine, you'll need to contact a reputable dealer or auction house. This can take lots of time and expose you to exorbitant fees.
As such, you might prefer to invest in exotic yet liquid vehicles like real estate investment trusts, energy trusts or currencies. Also known as REITs, real estate investment trusts function as "rent partnerships" that have the potential to return tremendous amounts of capital to their investors. Although they're traded like regular stocks, some REITs can carry annual yields of up to 20 percent. In a low-interest environment, such yields could provide a significant boost to your retirement portfolio.
Energy trusts share many common features with REITs. They also make high-yield distributions that can reach 10 percent or more. These vehicles usually distribute the proceeds from oil or gas extraction activities. Some even pay out the proceeds from pipeline and infrastructure leases. As a result of the ongoing natural gas boom, these trusts have become common in North America.
Finally, currency trading offers the prospect of short-term returns with measured amounts of risk. Unfortunately, this type of investment requires active participation. The currency markets can turn on a dime and quickly cause trades to unravel. If you have a full-time job, you may wish to avoid them.