Alternative Investing Primer – Beginner’s Guide

Our schools and even colleges don’t teach students about personal finance and investing. Far too many people don’t know anything about the most common form of investing, which is the stock market, let alone alternative investing. According to a 2016 Gallup survey, only 52% of adults owned any stocks. 38% of those stocks are owned by the wealthiest 1%, which is considered the most common and easiest way to invest. I couldn’t even find a survey of what percentage of investors invest in alternative investments, but it is safe to say it is very low.

Alternative Investing Defined

So, what are alternative investments exactly? It might be easier to tell you what it is NOT and then go from there. It isn’t any type of investment you can buy in the stock market. It is not stocks, bonds, mutual funds, Treasuries, mutual funds, ETFs, or anything else sold by Wall Street. These Wall Street investments are the things that most people are the most comfortable with. They believe they understand them, but do they really? Yes, it is possible to buy certain ETFs or Trusts on an exchange that will give you exposure to these asset classes. That is not alternative investing. Instead, you will need to get your hands dirty to get into the most profitable and exciting alternatives. Here are several investments that are considered alternative:

• Real Estate
• Private Placement
• Gas & Oil
• Limited Partnerships
• Cryptocurrency
• Precious Metals
• Alternative Energy
• Private Lending
• Notes
• Artwork
• Collectibles

Alternative Exposure vs. Alternative Investing

If you go to your financial planner and ask about alternative investing, you will likely get told that they can give you “exposure” to many of these asset classes with the purchase of an ETF or fund of some kind. Exposure will not generate the same level of profits as actually investing in these alternative investments directly will generate. In my book here are the major weaknesses of investing using exposure vs. actual investment/ownership…

Control

Exposure to an asset class and buying that asset are two very different experiences. With exposure, you are buying into a financial instrument (ETF, Mutual Fund, or Stock) of companies that operate in this space. The first issue is control of the investment. You are a shareholder and have zero say in how these companies or funds are run. A professional management team performs management decisions. Profits or losses will be spread proportionally to investors.

Cost

The second issue is cost; there are a lot of fees in any of these instruments that you often don’t see. These fees pay all the professional managers, analysts, overhead, salaried employees, and marketing of these funds. Those fees are typically very high and drain a substantial part of your returns over time.

Tax Savings

Real alternative investing is buying these assets directly. You can buy most of them inside a qualified retirement plan (IRA, Roth IRA, 401(k), SEP), but it must be a self-directed plan. What you can’t do is buy them inside of your TD Ameritrade or Charles Schaub IRA. Please note that alternative investing inside of a self-directed IRA or 401(k) is an entire area of study in itself and will be covered in a future article. For now, it is enough to know it can be done. You can also purchase them outside of a retirement plan and some of them (real estate) come with an entirely different set of tax advantages that are beneficial. Some other alternatives also have some tax advantages outside of a retirement plan, but in my opinion real estate has the most. The bottom line is real alternative investing is not a mouse click away. It involves knowledge, hustle, grit, and patience.

Some of you will point out that stocks, bonds, ETFs, etc. can also and usually are purchased in a retirement plan and therefore are also tax-advantaged. This is true. However, I think many alternative investments have much higher potential upsides in a more rapid time frame. For example, if you flip a property in your IRA you can potentially make a 6-figure return in a few months for the right investment. In my opinion, it is hard to duplicate that with typical Wall Street investments. In my example, all that profit would be protected from taxes.

Benefits of Alternative Investing

So, if you can’t buy these easily with a mouse click in your TD Ameritrade account, why would you want to do it all? Profit and control. It comes down to your rate of return and ability to control your investment for maximum return.

The stock market, historically speaking, on average, produces anywhere from a 6-10% return on good years before fees. Your fees could easily strip 2-3% off those returns each year, so your real return might be closer to 3-7%, and, in bear markets, you can have negative years or several years where your returns are much lower, say 1-3% before fees. To be fair, you can also have record-busting years where you earn 15-25% returns, but those are very rare, typically a few per decade.

You have no control over the market and little actual control over your portfolio itself, depending on how you invest. I am not bashing all stock market investing. There is undoubtedly a place for it in any well-rounded investment strategy, if you choose, but a solid investment strategy should include alternative investments. Some investors only do alternative investing and, if asked, would tell you they don’t put one dollar into Wall Street investments. I do both, more on that later.

Alternative Investing Rates of Return

The profits on alternative investing can be tremendous. It is not uncommon to earn rates of return that on the low end would be 12% and on the high end could be 50-100% or even more. Not every alternative investment class will do this every time. It is certainly possible to lose money as it is in any investment, but many times you have much more control over how this turns out than you do merely watching the stock market go up or down each day.

I once spent an a week in Florida at an investment seminar and came down early to network with investors and investment groups in the area. I didn’t talk to a single investor that even considered investments under a 12% return and didn’t really start getting excited until it hit 15% or more. If your only experience investing is using the stock market and index funds I can see how achieving investment returns like these consistently doesn’t seem real, but I assure you they are.

Real Estate Investment Case Study

Here is a true story and example from a fellow alternative investor. She found a house by driving around that wasn’t listed for sale but needed repairs and updates. She looked up the owner in the county records and contacted them. It was owned by an older woman that had recently moved to an assisted care facility. Her daughter was managing her affairs.

They didn’t want to sell at first, so she gave them some useful information and just kept in touch with them for 5-6 months. Eventually, they wanted to sell because they needed the money. They offered to sell the house for $25,000 if she could pay all cash and close in 10 days and bought it “as is,” meaning they didn’t want to fix anything or clean anything out. She agreed and bought the house.

Once she owned the house, she cleaned and fixed it up over about three months and had about $35,000 all in with the initial purchase. The house was in a good area and was worth $150,000 when she decided to sell it a couple of months later. That is approximately a 427% rate of return on a single deal! This deal took about 12 months to complete, i.e., a one-year return. Ask your financial planner if they can match that with a mutual fund.

While this was an extraordinary deal, and you don’t get those every day, high return rates are far more common in alternative investments than a stock portfolio any day of the week.

Alternative Investing Control

You have a lot more control over the outcome and risk of many alternative investments than you do with a stock portfolio. Suppose the stock market doesn’t like what the Federal Reserve, President, or economy are doing. In that case, it can plummet in a single day by staggering amounts taking your portfolio with it, and there is nothing you can do but watch it go down.

With alternative investments, you have a lot more control. Referring to the example above about the house flip. This investor had control over how much she paid, how much work she wanted to do, how much to rehab it, and when to sell it. Without getting too far in the weeds on this, she had many other things she could control as well, such as financing, taxes, profit margin, and terms.

The Cost of Great Rates of Return and Control

It is probably apparent to you that in the above example, she didn’t buy that investment with a mouse click in a Charles Schaub IRA. The rate of return she received and control she had over it came with a lot of work, hustle, persistence, grit, and a smidge of luck. In other words, she had to find, assemble, and execute that deal. It took time, energy, and knowledge to put it together.

Great alternative investments are made. They are not sold to you by a broker or financial planner. You will need some education and a plan. You will need to execute on that plan to assemble a deal like this, but isn’t a 427% return worth that effort?

The cost of successful alternative investing involves your time to learn and assemble these investments. You will also need some money and time to learn how to do them in the first place. Once you know what you’re doing, you will need to get to work.

If this sounds like way too much work for you and the fantastic rates of return are not enough to motivate you, then you have few other alternatives. You will have to hire a financial planner, invest through a 401(k) with poorer investment choices, higher fees, lower rates of return, and almost no control. If that is you, then accept and embrace it now and read no further because alternative investing isn’t for you.

Alternative Investor Traits

To be a successful alternative investor, you need some skills, a certain set of traits, and to develop a different philosophy about investing than is often followed by most investors. In other words, while the rates of return and control you have over the investment, taxes, and timing are incredible, it requires an investment from you in many areas, including:

Knowledge

The above true story and example of the real estate investor with the 427% return didn’t happen by knowing nothing about real estate, jumping in her car, driving around, and suddenly finding a deal like that. She spent years and a fair amount of money learning the real estate business. She read books, attended seminars, took classes, studied markets, and networked with other investors. She had a passion for real estate investing and decided to learn the business.

All alternative investing success starts with a foundation of knowledge and skill. Without that, you will not know how to find, assemble, or execute these types of investments. You should choose investments in an area that you have an interest in and then learn as much as you can about that market and business. If you like renewable energy, then that is what you should study.

If you like medicine and biotech, then consider private placement investments in biotech startups. I happen to be passionate about real estate, so I attend seminars, purchase courses, read books, belong to professional associations, and network with people in the industry. I take time to drive around my city and neighborhoods to identify properties to find suitable investments.

I suggest you choose just ONE area that you are interested in to start. I would further advise that this be an area where you have some background experience. For example, if you have a degree in finance or information systems, fintech investments like cryptocurrency may be right for you. If you have a background in science, biotech may be a good fit. If you have experience in computer science, maybe a tech startup is an area where you could invest. If you are a real estate agent or work in property management then real estate investing might be a good fit. The point is to leverage your current skills and background as much as possible to begin.

One last caveat. I tend to use a lot of examples from real estate and the other alternatives I like. I don’t often use examples from alternatives I don’t do myself or understand as well. For example, I don’t know a lot about medical or renewable energy so I don’t usually discuss them. That doesn’t mean they can’t become incredible alternative investments.

My point is choose your own path. Don’t look at my examples and think the grass is greener on my side of the fence if you have no interest in real estate, notes, private lending, etc. As I said above if you don’t have a passion for it and no interest in it then investing in it is a terrible decision. You will not learn what you need to know and make costly mistakes.

Once you select your area that you want to focus on, you need to do the following:

• Reading: Read at least 6-10 books on the subject. I am a voracious reader and have read far more than this on my chosen investment areas. I believe this is the minimum you should read, but you should become a lifelong learner in your chosen investments. I once read that Charlie Munger (Warren Buffet’s partner) is a voracious reader and considers it the top activity for successful investors.
• Join an Online Community: There are many online communities related to just about anything you are interested in, including alternative investing. There are many communities around real estate investing, and I belong to many of them, but there are also others related to cryptocurrency, notes, private lending, etc. Just search Google.
• Online Learning: Online learning has exploded in recent years. There are dozens of sites that offer online classes in everything from specific areas of investing to college-level courses on topics. Many of them are free or very low cost, but if you must pay a little more for some that are very specific to your investment interest, then do it.
• Attend Meetups: Meetup.com is a fantastic resource to find groups in your area on specific investment areas. I am a member of Meetups on technology, real estate, cryptocurrency, and general investing. I meet like-minded people, learn new things, and pick-up resources. Log on and see what is available around you or reasonable driving distance.
• Seminars & Boot Camps: Once you get involved in a particular area of investing, you will likely find people teaching workshops and boot camps around your investment. These can be a little pricey, so shop around. Some are overpriced and not worth the money, and some are fantastic. I have attended ones on real estate, private lending, notes, self-directed investing, and cryptocurrency.
• Home Study Courses: As with seminars, you will likely find people offering home study courses. Sadly, some of them are junk and not worth the paper they are printed on. Again, shop around. Some are excellent and offer incredible value. Some even have seminars and boot camps that come with them.
• Podcasts: There is an enormous number of podcasts on just about every investing area you will be interested in. All of them are free and available in your favorite podcast player. I listen to them regularly and haven’t listened to the radio in my car in years. Just download a podcast player (I use Pocket Cast) and do some searching.
• YouTube: You can find a remarkable number of useful investing videos, both for traditional and alternative investing, on YouTube. Once I find a channel with good stuff, pushing out a lot of content, I will subscribe to their channel and watch their stuff. You will find some are using it as a platform to sell services or products, but many give great free content.

I have used every one of the methods above to learn about alternative investments, and I still use them today. I consider one of the best investments I can make of both time and money is my education. I am a lifelong learner, and you should be as well.

Whatever you do, please don’t skip this step, or try and shortcut it simply to try and get in and make a bunch of money fast, i.e., get rich quick. That will not end well and may set you back financially for years or possibly forever. Alternative investments are a fantastic way to supercharge your wealth-building endeavors, but they are complicated with a lot of moving parts.

If they were easy to do and easy to get in and out of, everyone would do it. It is BECAUSE they are hard and take a lot of self-education that you can earn such excellent returns doing it. Most people don’t want to invest the time, energy, and money into learning what it takes to be successful in this space. That is why it is so lucrative to the small number of investors that will.

Active Involvement & Management

With a stock, you can simply click your mouse, buy a bunch of stock, and sit back and wait for it to go up (or down). You can’t influence it, control it, or in any way make it do what you want. With many alternative investments, you play an active role in finding, assembling, and managing the investment. This is certainly true of real estate, private lending, notes, and certain collectibles. It may be less true with limited partnerships and private placements, but even these are typically investments where you are more active with the enterprise’s management.

For example, suppose you decide to do private lending. In that case, you will need to go out and find borrowers, create offers and terms, do your due diligence on the borrower, the collateral, execute the right paperwork, and then oversee the borrower as they repay the note. If they fail to pay you will need to foreclose on the collateral.

Another example is that if you decide to flip a house, you will need to find the deal, estimate rehab, do a financial analysis, sign contracts, complete due diligence, manage the rehab, market the property, and manage all the bookkeeping.

Due Diligence is Mandatory

As you have probably seen, these investments require a lot of learning and very active management. Part of that management is your due diligence of any investment you consider. This could involve financial analysis, investigating a management team, studying a proposed business model, executing proper paperwork to protect yourself, legal reviews, or any number of other steps. Whatever the steps are for your chosen investment, take the time to do it. If you need to hire an attorney, consultant, or accountant, do it. Don’t be cheap, you will regret it. Make sure you fully understand the risks, how you get in, and how you get out. Upside AND downside. Trust your instincts. If something doesn’t feel right about an investment, don’t ignore it. Your subconscious mind is picking up on things that don’t add up or seem right. Investigate further. Here are some other things to do/consider:

• Avoid Familiarity: Many times, good investments come from your network of friends, family, and fellow investors. No matter how friendly or familiar you are with the person, ALWAYS follow the due diligence steps. Don’t shortcut it because you “know the person” or “they wouldn’t screw you because they know you.” Always complete the full due diligence and execute the paperwork the same way you would if you had met the person that morning. I have been screwed by people I called friends and colleagues more than once. Money (or lack of) has a way of doing perverse things to people’s commitments and promises.
• Simple Pitch: I used to work with a lot of tech startups and venture capitalists. One of the best pieces of advice I ever received is that the opportunity should be able to be described in one sentence. If it takes more than that, it is too complicated, and someone may be deliberately increasing the complexity to confuse you. It is very easy for a grifter to sling a lot of sh*t and make something sound better than it is while obscuring the details. It also may just be a bad business model or deal because it is too complicated. In all cases, walk away. There will always be another deal later.
• Why isn’t Traditional Financing Used: If you are thinking of lending money or investing in a business, startup, limited partnership, etc., ask yourself why they aren’t going to a bank to get financing. Remember, they are coming to you because they can’t get traditional financing. It doesn’t mean you don’t invest with them, but it does mean you better be extra diligent in evaluating the opportunity. If a bank doesn’t lend to them, you want to know why. There may be a critical flaw that will make your capital vanish faster than an Arizona frost.
• Stay in Your Lane: I said it before, invest in what you know and understand. Don’t get swooned by possible huge returns in investments you don’t understand. It is easy to get sidetracked in alternative investing and venture into areas you don’t understand because it sounds good. Don’t do that. If you don’t have a background in it or have studied it carefully, pass on it.
• Good Deals are Found or Made: If someone comes and pitches you on a deal, your radar should become extra sensitive. In my experience, great investments are often found or more likely created, but rarely are they sold. If someone is trying to sell you a deal, you better be watching your backside very well.
• Consider the Taxes: You also need to evaluate the tax impact of a successful investment. Some people become so enamored with how much money an investment will generate that they forget you will need to pay taxes on it at some point. Can you do it inside a tax-advantaged self-directed Roth IRA and avoid the taxes forever? Is there another way to minimize the tax bite if you aren’t doing it in a retirement plan? You will need to study taxes and work with a good accountant. Not paying attention to this could take a huge bite out of your expected return depending on your tax bracket.
• Learn to Say No: If you have ever watched the show Shark Tank, you will see that the investors say no a lot more than they say yes. That is generally a good policy to follow in alternative investing. You can’t lose money on the investment you say no to, but you can lose a fortune on the wrong one you say yes to. You can also overextend yourself if you start saying yes too many times. Learn to say no more than yes. There will always be another deal, but if you do the wrong one your loss of capital could take you out of the game for a long time.

A real estate investor I have a lot of respect for and is very successful once gave this advice. He would imagine the worst possible outcome a project could take. Then he would decide if that happened could he live with or survive it. If the answer were yes, he would proceed; if it were a no, he would take a pass.

I have a friend that many years ago invested in a real estate deal with a well known investor. He will readily admit today that he didn’t do all the due diligence he should have. He was promised to be in first position on the title. It turns out he was actually in 5th position, which is really low. When the investment went bust he was so far down the list of creditors that he lost his entire investment of $75,000. He admits this could have been avoided by doing better due diligence and having an attorney look over documents and be present at closing. Had he done that this costly mistake could have easily been avoided.

Patience & Time Investments

These types of investments take time to learn, find, and execute. There is a reason a professional investor can turn it into a full-time job. You may not have that kind of time to invest in these projects, if you don’t, choose alternative investments that don’t require large commitments of time over long periods, rental property, for example, or a bit more passive like notes. If you are running a business, as I presented as a piece of our trifecta of the Money Outlaw lifestyle, then you may have the flexibility to pursue these additional projects. For example, I run a consulting business and have a lot of flexibility to work my alternative investment projects around my everyday business. Hopefully, it is becoming more apparent why the Money Outlaw philosophy is built on the three main concepts of entrepreneurship, alternative investing, and economics. I recently flipped a house and I was able to go work on the property and manage the project around my consulting work pretty easily. This would have been much more difficult or impossible if I held a traditional 9-5 job.

You will also need patience as you hunt for your investment. It is easy to become discouraged and feel a little desperate and start jumping at anything that looks like an opportunity. That is a recipe for disaster and lost money. I have personally experienced this with my real estate investing. As I write this, the market is on fire, and good deals are selling in days or even hours. Nothing stays on the market long and is often quickly overbid to prices that don’t make financial sense for an investor. I have felt a sense of urgency to grab any deal I can just to get another property. I have had to force myself to back off and do my financial analysis, and if a deal isn’t right, move on.

You will never lose money from the deal you didn’t do because it wasn’t right, but you can lose a pile of cash by leaping on something quickly before you fully understand what you are investing in. There will ALWAYS be another deal. Take your time, do your research, be patient, and pull the trigger on the right deal at the right time. Your experience will be so much better, and your returns will likely be far better than you hoped.

Have Cash Reserves – Cash is King

As you can see, these types of investments do involve some risk, although it is very manageable in most cases, and things can go wrong. That means you need cash reserves to both feed and manage the investment and hold you over until you can cash in and receive a return. You will need liquidity and don’t ever, never, ever, ever use the money you need to pay bills, emergency funds, or money you might need in 1-3 years at a minimum and possibly much longer depending on the type of investment.

If you are flipping a house, you might be able to wrap it up anywhere from 3-12 months, depending on how much rehab you need to do, the market, etc. If you are investing in a biotech startup, it may take several years to mature and be successful. If you are buying distressed mortgage notes, it may be years until you recover your money or execute a foreclosure.

The point is you will need different pots of money that you can access while you are pursuing your alternative investing strategy. This is where a capital accumulation plan comes into play.

Hustle & Grit

As you can see, these types of investments are not just going to fall into your lap. If it is truly an incredible deal, like the real estate investor mentioned earlier, that made 427%, you will need to find and build that investment. That takes hustle. If you want to lend to private investors, you will need to find them and construct the loans. The longer you do these deals, the better your network will become and the easier it will be to find and assemble deals but make no mistake, YOU will need to make it happen.

You will also need what I call grit. Sometimes these investments go south, or unforeseen things come up. When that happens, you will need to act fast and get involved and figure out solutions and take action to preserve or save your investment. You may need to stick it out when things go wrong. You will need to manage stress, think clearly, and most importantly, take calm, deliberate action.

I was working on a house flip and I had a disagreement with a contractor that wanted to be paid all in advance just to show up. I refused his request and he told me to find another person to do that work. I knew paying him in advance was a bad idea, but by refusing him and having him walk away I was in a jam. I needed the work done and I was under a deadline so I had to scramble and find a replacement contractor that would not only finish the job, but on my terms and at a good price.

I do some active sports for fun. Among them is scuba diving. While it is a very safe sport, sometimes sh*t happens when you are 150 feet underwater. If that happens and you panic and do something stupid, you could severely injure or even kill yourself. Instead, you need to force the panic down, remain calm, and take careful and deliberate action to fix the problem. It is no different with alternative investing.

Alternative Investing vs. Traditional Investing

I am sure you have noticed that I have mentioned stock investing more than a few times in here. I have also said I do it myself. You may be wondering if I am giving you mixed messages. My philosophy is to use ALL forms of investments, both traditional (stocks, bonds, ETF) AND alternative investments (real estate, precious metals, cryptocurrency), to create wealth. I do this because I am knowledgeable about both. It also creates a much more stable investment portfolio that does a lot better over time.

Liquidity & Volatility

I love the reasonable returns I can earn investing in the market and the liquidity if I need to sell fast to raise cash. As you may have gathered, I love the incredible returns I can earn in alternative investing, but it takes a lot more work to get those returns, although I could argue it requires a lot of work and self-education to do well in the stock market.

I know investors that won’t go near the stock market. They stick exclusively to alternative investments and love it. The individuals I am thinking of literally get ill when the stock market takes a 1,000-point dive in a day, and they watch their savings cut down by thousands of dollars instantly. Yes, this can and does happen. If you can’t take that kind of volatility or don’t feel you know how to do it well, there is nothing wrong with being exclusively an alternative investor.

However, if I need to raise cash fast I can sell off stocks or bonds much faster and easier than I can sell a half finished house I am flipping or a rental property with tenants in it. Yes, some alternative investments can be sold quickly to raise cash like cryptocurrency, but many can’t. So the stock market gives liquidity but demands a tough constitution to stay calm during market volatility, corrections, crashes, and extended bear markets.

Ease & Speed

Traditional investing is typically faster and easier. You can do it in most brokerage accounts or retirement plans. It is very liquid and can be converted into cash quickly. We have a large and fluid market in stocks with lots of buyers and sellers. Alternative investments tend to be less liquid, take longer to mature and require specialized knowledge. Sometimes there are limited buyers and sellers. Often you have a lot of work and time needed to assemble and execute it.

Comprehensive Portfolio – 3 Legged Stool

I think of a good investment portfolio as being a lot like a 3-legged stool. Traditional investments make up one leg. Alternative investments make up the second leg and cash or reserves makes up the third leg. By maintaining these 3 types of investments I can make great returns with my alternative investments, have reasonable returns and liquidity with my traditional investments and cash to either sustain me when things go wrong or take advantage of a great opportunity in one of the other two areas.

For example, when COVID-19 first broke out in the U.S. the stock market crashed over several days and really bottomed out in mid-March. I kept watching it crash and moved some excess cash over and positioned it for when it finished falling. I started buying stocks that had been really hammered at incredible discounts and today, less than a year later, I have investments that are up 50-100%. My timing wasn’t perfect on this, some stuff kept dropping after I started buying, but if I knew it was a good investment I would just buy more when it went lower. I saw a lot of red ink in my traditional investing leg of my stool for a while before stuff started turning around, but I was pretty sure it would, and it eventually did. I am very glad I took the steps I did when I did.

A second example also related to COVID-19 was buttressing against government overreach. During the pandemic the CDC created an eviction moratorium. Several property owners had tenants that stopped paying rent. If you were a rental property owner you had expenses leaving your bank account without any rents coming in to cover the expenses. Having cash reserves or things you could easily liquidate for cash is the only thing that probably saved some of these smaller property owners.

Baron Rothschild’s famous comment is about contrarian investing. It means when everyone is panicking, and the market is crashing is when you find deals that will truly grow your wealth when the panic is over. The same thing happened for real estate investors after 2008. This is only possible if you are a disciplined investor, understand the market, and have a solid 3-legged stool of investments you can bounce back and forth as opportunities present themselves.

There are pros and cons to every kind of investment, and there is no such thing as a completely risk-free form of investing—all investing subjects you to risk. I will argue that many times alternative investing can be managed so that your risk is manageable with outsized returns, but others would tell me that is incorrect. I wrote an article about how risk is based partly on your perception.

Self-Directed Retirement Plans & Alternative Investing

I will leave you with one last thing to consider. When you open up a self-directed retirement plan and start doing some of your alternative investing inside a tax advantaged or tax free account you add plutonium to your wealth building efforts! Most people have no idea that you can combine alternative investments with a self-directed solo 401(k), IRA, or HSA. Understand you can’t go set one of these plans up at a traditional brokerage such as TD Ameritrade or eTrade, but there are many special custodians out there that will set one of these plans up for you and allow you invest and hold alternative investments inside your self-directed retirement plan. Now, imagine for a moment a real estate investment that could potentially earn a 15-25% return tax free…

Let that sink in for a moment. Imagine doing one or more of those type of investments year after year for decades and NEVER paying a dime in taxes on the gain or distribution, yes it is possible…

Plutonium!

Conclusion

I have been both a traditional and alternative investor for years. I don’t invest in all areas of alternative investments. I have chosen about four areas that I am most passionate about; 3 of them are related (real estate), but please remember, as I advised earlier, to start with one. I did that as well and gradually expanded into the other areas as I became proficient with one. There are alternative investments I never have and probably never will invest in. I simply have no interest in them and the ones I do invest in keep me more than busy. Finding a couple that you really enjoy and becoming good at doing them will earn you amazing returns and become easier and easier the more you learn and do.

I have earned some very nice returns in my alternative investments, and those investments have grown my wealth, balance sheet, and passive cash flow to a great degree. I love investing and learning about those areas I am passionate about. I believe it takes that love and learning to become successful in alternative investing. If you decide to go into alternative investing just for the money and have no interest in the area or enjoy learning about it, you may not be very successful. Again, don’t forget that both legendary investors Charlie Munger and Warren Buffet are voracious readers. Munger has been quoted as saying that successful investors must be readers. While they are primarily stock investors their advice applies even more to alternative investments in my opinion.

In addition to the passion, curiosity, and self-education required to be a good alternative investor, you must have a willingness to be deeply involved in your investment. As I discussed, these investments don’t fall into your lap and require a lot of management to see the returns. If you don’t want to put that kind of effort or time into it, then you should stay away from alternative investing. It isn’t for everyone, and that is OK, don’t force yourself into it.

I believe the Money Outlaw philosophy is something you should be passionate about and interested in doing. That includes each of the three main areas I discussed in other articles. Alternative investing is one of those, but it may be an area you don’t wish to pursue. If you do, I think you will find it an incredibly rewarding way to earn wealth and live a more exciting and creative life. Happy investing!