10 ALTERNATIVE INVESTMENTS FOR CANADIANS THAT CAN HELP GROW YOUR WEALTH

Canadians have access to several alternative investments that can supplement their traditional portfolio, help grow wealth, and free up more time and money to see the world.

As travel enthusiasts, we’re always looking to get the maximum value on our travel spend. That’s why we focus on credit card sign-up bonuses & maximizing redemptions.

Unfortunately, it can be very challenging to achieve your travel goals if your finances are all out of whack. If you have credit card debt, it can be hard to get new credit cards (and their subsequent sign-up bonuses). If you can’t retire, it can limit the amount of freedom you have to travel.

Simply put, a strong personal finance foundation can help you maximize the points/travel game, and a strong investment portfolio is a huge part of that.

If you’re like most Canadians, your investment portfolio is made up of a few different types of assets: stocks, bonds, and maybe some mutual funds or ETFs. These funds are probably housed in a tax-sheltered account (RRSP, RESP, TFSA), or a taxable investment account.

But as your wealth continues to grow in these accounts, you can start dipping your toe in the world of alternative investments. 

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What are Alternative Investments?

Alternative investments are assets that do not fall into one of the traditional investment categories. 

Alternative investments are usually limited to institutional investors and high-net-worth individuals who can afford the risk (purchasing equity in a company for example……..like Dragon’s Den), but that isn’t the case for all alternative investments.

Positives of Alternative Investments:

• They can yield VERY high results, especially if you have a great deal of knowledge in the area where you’re investing
• Alternative Investments will diversify your portfolio
• You can get access to different money managers when dealing with alternative investments

Negatives of Alternative Investments: 

• You sometimes need A LOT of capital for some alternative investments
• These investments are not very liquid, and you may not be able to withdraw your money for quite some time
• High management fees

When Should You Invest in Alternative Investments?

There are a few things you’ll want to have in place before dabbling into the world of alternative investments. There are several tax-advantaged accounts that Canadians need to leverage earlier in their personal finance journey. Before investing in alternative investments, you’ll need: 

• To be comfortably putting away 15% of your paycheque towards retirement (in an RRSP or Registered Pension Plan)
• Leveraging a Tax-Free Savings Account as an opportunity fund
• Leveraging a Registered Educational Savings Plan for your child’s university education
• 3-6 months’ worth of monthly expenses in a high-interest savings account. 

Once you have these building pillars in place, you can now start looking into alternative investments, in addition to the traditional investment options available in the stock market. 

You’ll want to make sure that your alternative investments are in a field where you have some degree of knowledge. For example, if you know a lot about wines & whiskey, you could consider those as alternative investments. 

Don’t invest based on news articles. You can’t just throw your money against the wall and hope that it sticks. Invest in what you know, and the odds of success go up. 

Here are 10 alternative investment options Canadians should consider

1. Real Estate

There are many ways to invest in real estate:

Traditional

If you want the traditional route, buying and flipping properties works well for generating profit. 

You can also go the route of being a landlord and generating income from monthly rent. This allows you to eventually sell your rental property, netting yourself some cash as you get closer to retirement.

Real Estate Investment Trust

A REIT (Real Estate Investment Trust) provides Canadians the ability to invest in the lucrative real estate market. 

Canadians can purchase trust units (shares) the same way they would buy any other stock. This provides REITs with the money to invest in real estate, which allows them to operate within Canada and abroad. Some exclusively focus on domestic or international properties while others have holdings from both regions depending on where there are more profits for their investors’ returns.

REITs are an incredible way for even the average investor to invest in the Canadian real estate industry which has benefitted from massive appreciation over recent decades.

One of the reasons why REITs are so popular is that they distribute at least 90% of their taxable income to shareholders annually as a dividend. 

Mortgage Investment Corporations (MICs)

MICs pool money from investors and lend it to mortgage borrowers in the form of debt or equity. This is also known as crowdfunding. 

With MICs you’re investing in a real project, as opposed to a company (like a REIT). These projects could be hotels, strip malls, housing, etc. 

One of the benefits of MICs is that these projects typically have management teams in place, ultimately reducing the headache of being a landlord, or building manager. 

Simply put, you get the benefits of owning a physical property, without having to answer the phone at 2 am dealing with your tenant’s clogged toilet.

One of the companies offering these services to Canadians is addy Invest

 Addy is an online investment platform based out of Vancouver. Addy’s mission is to make real estate investing accessible to all Canadians. With addy, the barriers to real estate are drastically reduced, and Canadians and invest with addy for just $1.

Syndicated Mortgages

Syndicated Mortgages are similar to MICs in that they pool money from 2 or more investors and invest it in a mortgage. Unlike MICs, syndicated mortgages involve one specific mortgage. 

This is becoming increasingly popular over the previous few years due to the Canadian market being so hot right now. 

With syndicated mortgages, a sponsor pitches a group of investors (you included) to invest in a particular project. Since Syndicated Mortgages are more intimate, you’ll be working a lot closer with the deal team when compared to MIC’s

With Syndicated Mortgages the financial barrier to entry is a lot higher than MIC’s (usually at least $25,000).

2. Cryptocurrency 

Unless you’ve been living under a rock, you’ve probably heard of Cryptocurrency

Cryptocurrencies are a form of digital currency that exists outside the control of governments and central banks. This decentralized design allows them to operate without regulation, making it more difficult for anyone to regulate or tax these new technologies.

Cryptocurrencies are almost impossible to counterfeit and aren’t issued by a centralized authority. This makes them immune to government involvement, which for many, is a good thing.

The advantages of cryptocurrencies include faster money transfers and decentralized systems that do not collapse at a single point of failure.

3. Private Equity

This is capital invested in a private company. Rather than putting your money into the stock market with a publicly traded company like Canada Goose, this would be investing in Canada Goose before it went public. 

Private equity is a type of investment where a group of investors pool money to purchase equity in a private company. Albeit made for TV, Dragon’s Den is an example of an investor purchasing equity in a private company

Sometimes investors purchase a public company, with the intent of taking it private. 

As with syndicated mortgages, there is typically a very high financial barrier to entry in the private equity market. 

There are 3 types of Private Equity Investments 

Venture Capital 

Venture capital (VC) is a form of private equity where investors provide funding to startup businesses that are believed to have long-term growth potential. This is very common within the technology industry. 

Venture capital usually comes from investment banks, or high-net-worth individuals who are looking for big returns.

Growth Capital

Growth Capital involves an injection of capital into an organization that is beyond the start-up or small business stage. An example of growth capital could be investing in a successful Canadian company who is looking to enter the European market.

Buyouts

This is when a company is purchased outright. In this situation, investors will identify established brands who is struggling financially, and purchase that company, with hopes of turning it around (sometimes with the intention of selling it at a higher value)

4. Private Debt

These funds raise capital from investors and make out loans to companies on a short-term basis. The loans are secured through the company’s assets. 

These are investments not financed by banks.

Typically, the company pays a high pay a premium rate on the loan, which makes it attractive from the lenders perspective. 

5. Collectables

There are a number of collectable items out there that provide money making opportunities. As mentioned earlier in this post, you only want to dabble in the collectable space if you have in depth knowledge about a particular topic. 

Some asset types have vastly outperformed the S&P 500 over the last 25 years, so the money is out there if you’re an expert. 

Common Collectibles Include: 

• Comic Books 
• Coins
• NFT’s
• Art 
• Antique Furniture
• Trading/Gaming Cards
• Classic Cars
• Stamps
• Wine & Whiskey
• Jewellery
• Antique Toys
• Vinyl Records

One downside with collectables is that they don’t offer a great deal of liquidity. If you own a classic car, but can’t find a buyer, you’re sitting on that asset, potentially indefinitely. 

6. Currency – Forex Trading

You can trade all the world’s major currencies on a number of platforms

Forex Broker	Accepts CA Residents	Minimum Deposit
CMC Markets	Yes	$0.00
Interactive Brokers	Yes	$0
FOREX.com	Yes	$100.00
AvaTrade	Yes	$100.00
Saxo Bank	Yes	$2,000.00
FP Markets	Yes	$100 AUD
Tickmill	Yes	$100.00
HYCM	Yes	$100
VT Markets	Yes	$200
Eightcap	Yes	$100
BlackBull Markets	Yes	$200

Here is a list of Forex brokers. Source: Forexbrokers.com 

7. Commodities

Commodities include precious metals, agricultural commodities, oil and gas, among others. They are typically natural resources with industrial use.

At first glance, it may seem like an investor would need to own the physical asset in order for their investment to be successful. However, you can invest in these commodities via ETFs that are diversified across many different global markets

One of the benefits of investing in commodities is that they have traditionally acted as an inflation hedge. Commodities don’t rise and fall alongside the market. It’s all based on supply and demand for the commodity itself. 

All in all, it’s a great way to diversify. 

You can invest in commodities within your everyday trading platform.

8. Hedge Funds

A hedge fund pools money from investors and uses a variety of investment assets such as derivatives, to generate very high returns. 

Hedge funds are set up to make money regardless of market trends.

Hedge funds are often seen as the most sophisticated way to invest money. They use leverage (debt) in order for them amplify their returns and risk-reduction strategies like hedging which helps reduce possible losses when things go wrong.

The strategies that hedge funds use to make money are complicated and risky, which is why they can charge such a high premium for them. Typically, hedge fund investing is only available to high net worth individuals

9. Peer to Peer Lending

Peer to Peer lending is similar to private debt funds, but they cast a broader net 

In the ever-growing world of peer-to-peer lending, you can now invest in other people and businesses without having any ownership or control. The returns are much higher than traditional banks would offer with products like a GIC.

An example of a peer to peer lending platform is LendingLoop

Crowdfunding

Another popular peer to peer lending method is crowdfunding.

Crowdfunding sites offer entrepreneurs the chance to raise money for their projects by appealing directly with online investors. There are various different types of Crowd fundings available including equity injections, where investors can purchase part-ownership or shares in a business or reward, which might include product samples from brands

There is typically a low financial barrier to entry with crowdfunding. Kickstarter is an example of a crowdfunding platform

10. Agricultural Farmland

You can invest in agriculture in a number of ways. Investing in the physical asset of farmland is one way to diversify your investment portfolio. 

You can also invest in physical assets including anything from agriculture technology to farming operations.

Conclusion

We always encourage leveraging the tax-advantaged accounts offered by the GOC first (RRSP, TFSA, RESP), but beyond that, there are several alternative investments you can leverage to grow wealth.

Canadians have access to a number of investment opportunities that can supplement their traditional portfolio.

With alternative investments, it’s always best to invest in what you know.

4 Tips to Help You on Your Financial Wellness Journey

1. Have an emergency fund consisting of 3-6 months’ worth of expenses before dipping into alternative investments
2. Leverage the tax-advantaged savings accounts before exploring alternative investments 
3. Invest in areas where you have a decent amount of prior knowledge (only invest in wine if you have a passion for it)
4. Don’t expect quick returns with some of your alternative investments. There are varying degrees of liquidity with these investments