The market has been surprisingly resilient lately against the global challenges the world has been facing, but even some of the most optimistic investors are bracing themselves as a bear market becomes increasingly likely.
Adding passive income investments to your portfolio could ensure you continue seeing positive returns if stock prices fall.
Real Estate
An article about alternative investments wouldn’t be complete without mentioning real estate, and it’s no secret that the passive income this asset class offers can help protect total returns in a down market.
One of the most popular strategies to capture this passive income is through high-dividend REITs. However, not all dividend-focused REITs are positioned to perform well over the next couple of years, especially with rising interest rates.
When looking at REITs that can withstand a potential economic downturn, it’s important to choose companies that have a healthy balance sheet, a reasonable FFO payout ratio and a property portfolio with a positive outlook.
Publicly Traded REITs: Two REITs that currently fit these criteria are VICI Properties Inc (NYSE: VICI) and Community Healthcare Trust Inc (NYSE: CHCT). Both companies have a healthy debt to EBITDA ratio and a well-covered dividend.
The downside to publicly traded REITs is that the share price is vulnerable to overall market volatility. While dividends should remain intact for these two REITs, share prices could suffer during a bear market.
Private REITs: Shares in private REITs aren’t traded on a stock exchange, so the investors’ equity tends to be better protected from a downturn in the stock market.
The CrowdStreet Private Equity REIT I (C-REIT) offers a rare opportunity to invest in a private REIT with a minimum investment of only $25,000, compared to the six-figure minimum investment required for most private equity real estate funds. The REIT has a target investor IRR of 15% over the expected five to seven-year investment term.
Real Estate Crowdfunding: Crowdfunding is becoming a mainstream option for real estate investment companies and developers to fund deals. Instead of being limited to raising capital through private equity firms, these companies can now offer these opportunities to individuals through crowdfunding platforms.
Investors can browse real estate offerings and choose deals that fit their investment goals. There are even options available to invest in properties with as little as $100.
Related: Browse Real Estate Investment Offerings on Benzinga
Art
The fine art market has been getting more attention lately and for good reason. Contemporary art has outperformed the S&P 500 over the past 25 years, with a 14.1% average annual return.
Most notable, however, is its performance during years of high inflation and down markets. Blue-chip art prices appreciate 23.2% on average when inflation is at least 3% and, according to Citi’s Report on the Global Art Market, outperformed 10 major asset classes during the market downturn in 2020.
Options for Retail Investors: Some of the most valuable works have price tags of well over $1 million, making it difficult for the average investor to gain access to the art market. However, not all artwork is quite this exclusive. People have seen impressive gains from paintings purchased in the $5,000 to $10,000 range, including the Salvator De Mundi painting by Leonardo da Vinci purchased for $10,000 and sold for more than $450,000,000 just 12 years later.
The problem is that an investment in art on the lower end of the market is extremely speculative and results in losses more often than it results in gains. A better option for most retail investors is to purchase shares of works that are trading on the higher end of the market, where more consistent returns are realized.
Related: Browse Art Investment Offerings on Benzinga
The Case For Alternative Investments
Alternative investments typically offer a low correlation to the stock market. This type of diversification is important through all market cycles but is becoming increasingly necessary as a bear market becomes more likely in the coming weeks or months. Tangible assets like real estate and fine art tend to be more resilient during market turmoil, making them worthwhile options for any investor to consider.
Photo by Daniele Levis Pelusi on Unsplash
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