Shares are arguably the most popular and well-known form of investment among retail investors. Most people associate the “term” investing with the stock market. However, there are several asset classes that you can invest in that could potentially generate higher returns than shares.
In this article, you will be introduced to five investments that could outperform the stock market in the coming years.
While property investments require a certain amount of initial capital investment, they are also among the most profitable. In the last ten years, the value of UK property has almost doubled. According to the Halifax House Price Index, UK real estate has generated a ten-year ROI of over 43%.
In the past five years, the value of UK property increased by over 27%. During the same time period, the UK stock market - measured by the FTSE100 Index - only generated a return of 12.2%.
When it comes to investing in property, you will need to spend the time researching potential investment properties as well as the type of property you would like to purchase and the areas they are located in. For first-time property investors, this can be somewhat daunting. However, the long-term investment returns the property generates should make it worth it.
Peer-to-peer lending is another interesting asset class to look at for yield-hungry investors. P2P lending enables small companies to raise capital through online peer-to-peer lending platforms from a range of private individuals. Investors (lenders) receive relatively high-interest rates (compared to bonds) due to the higher level of risk involved in providing loans to startups and small businesses.
Average annual interest rates on P2P loans vary from platform to platform and loan to loan. At the low end, you can expect to make around 4% per annum. On the high end, you could make up to 25%. Of course, the higher the interest rates, the higher the risk.
P2P lending can provide a stable income stream that tends to outperform traditional fixed-interest investments such as government bonds. And, if you pick the right borrowers, you make even outperform the stock market.
High-yield bonds are fixed-interest debt securities issued by small and medium-sized enterprises. In simple terms, they are loans given to small businesses that require funding.
As bonds issued by SMEs are considered riskier (because they are more likely to fail than large corporations), their bonds come with higher yields.
As an asset class, high-yield bonds are very interesting. As the name suggests, they generate higher yields than government and high-grade bonds but are also riskier than their higher-quality counterparts.
In the past five years, high yield bonds have generated an ROI of 21.1%, measured by the Markit iBoxx Global Developed Markets Liquid High Yield Capped Index (GBP Hedged). The stock market in the UK only generated a five-year return of 12.2% in comparison.
Investing in startups is another option if you are looking to outperform the stock market. However, this is arguably one of the riskiest investments one can make.
A popular startup adage says that nine out of ten startups fail. While that figure has been disproven, it is true that the majority of businesses fail within the first five years. Being an early investor in such businesses is, therefore, a very risky affair. If a startup does succeed, however, the payoff is usually substantial for early investors.
Small investors who want to add exposure to startups to their investment portfolio will find investment opportunities at online crowdfunding platforms. There are dozens of equity crowdfunding marketplaces where startups are looking to raise capital by selling shares in their company to private investors. Most of these platforms are targeted specifically at small investors, which enables you to invest in promising new companies for as little as £10.
If a company you have invested in at an early stage ends up being bought or goes public, you will make bank. However, more often than not, that will not happen, and you will lose all your invested funds. Startup investments are, therefore, only for risk-loving investors who have experience in analyzing companies and are willing to lose their invested capital.
Finally, there is crypto. Cryptoassets, such as bitcoin, have the potential to outperform traditional assets by several multiples. In fact, bitcoin was the best-performing asset class in the past five years, generating over 2,350% ROI.
While there is no guarantee that the impressive historical price performances of the leading cryptocurrencies will repeat itself, they remain among some of the most potentially lucrative high-risk/high-return investments available today.
Moreover, the barriers to entry for investing in cryptocurrencies are next to none. Anyone in the world with an Internet connection has the ability to buy and store crypto assets as an investment.
Arguably the best way to add bitcoin to your investment portfolio is using our crypto saving service. Vimba enables you to invest a fixed amount into bitcoin at regular intervals by linking your bank account to your crypto savings account in a fully automated fashion. Thereby, you are able to add cryptocurrency exposure to your investment portfolio, which could help you to outperform traditional assets such as stocks and bonds if bitcoin continues to gain in value over time.