2021 Focus on Alternative Investments
2021 might just be a big year for alternative investments. These include a broad range of investments and many people define these differently, but for me alternative investments include cryptocurrencies, precious metals and royalty assets.
Crypto As many of my long term readers know, I am focused solely on Bitcoin as a cryptocurrency investment. If you're interested I recently updated my crypto ranking here. This is primarily due to Bitcoin's dominant market capitalization compared to the other cryptocurrencies, acceptance as a commodity investment by the regulatory authorities, rising institutional interest and tremendous liquidity. In reviewing my portfolio I would have to say my small stake in Bitcoin has clearly outperformed all of my other investments this year and I intend to continue to hold and grow my position through small monthly purchases just as I have been doing all along. I expect more volatility in the future with Bitcoin and certainly some strong pullbacks, but long term I see this as a great hedge against inflation of fiat currencies.
Precious Metals As far as precious metals go, my focus has historically been in gold and silver. I lean more towards physical ownership (coins stored in bank vaults), but other forms of ownership such as the exchange traded funds GLD and SLV are also good and liquid ways to own the metals. Gold and silver are expected to continue to do well in the coming year due to the continued strong monetary and fiscal stimulus that will be required to recover from the COVID recession. This puts tremendous downward pressure on the dollar which makes other assets more valuable, including gold and silver. Although gold and silver have been trading relatively flat lately, many believe a big upward move is due during 2021. Since gold and silver don't pay interest, the near zero interest rate environment only makes owning these more attractive as a store of value since you aren't really giving up much in the way of income vs holding bonds and there certainly seems to be some upside. If you're interested, I wrote a book on investing in gold and silver - check it out here.
Options Trade on GLD/SLV One idea I had if you are interested in earning a yield on GLD and SLV and you are bullish about these commodities long term is to buy shares of the ETFs and sell call options at the same time. For example, you can buy 100 shares of GLD for $17,600 (at Friday's closing price) and sell one contract for about $360 with an expiration 30 days out at $176.50 strike price. Whether GLD is higher or not when the contract expires, you'll make $360, but if it's higher you'll get your investment principal back to reinvest when the option is called and you can repeat the process. If GLD closes below that level, you can sell another call for 30 days out. If GLD goes down a lot, you may have to wait for the price to recover before you can sell more calls, but again if you are bullish about the long term you shouldn't be concerned about this. Similarly for SLV, you can buy 100 shares of SLV for about $2,400 (at Friday's closing price) and sell one contract for about $125 with an expiration 30 days out at $24 strike price. Again, whether SLV is higher or not at the expiration of the contract, you make $125, but if its higher you'll get your investment principal back to reinvest when the option is called. Again like GLD, if it closes lower you can just wait to sell calls again. It's important to note that while these seem like small amounts relative to the capital invested, the returns are actually quite good. For example, you are earning 2% on your investment in GLD for a 30 day hold, which is 24% annualized. Similarly, for SLV you are earning 5% on your investment for a 30 day hold, which is 60% annualized. You can capitalize on investor demand for call options and make steady profits while holding the shares for the long term and protecting your downside risk with patience. This is why selling call options is my favorite (and most profitable) options investing strategy.
Royalty Assets Although they may appear attractive at times for the apparently high yields, these do require a bit of caution. I would have to say that now as we look at the COVID situation, those assets are probably very fairly priced and could see some upside over the future as concerts, live performances, movie / tv production and other similar types of activities restart and music consumption is not limited to only streaming and radio. As such, now might be a good time to check out sites such as Royalty Exchange and bid on some royalty streams. You can buy "life of rights" or for a set period - typically 10 years. My experience with this hasn't been that great because I bought my royalty assets a couple of years ago and they have not yielded much the past two years as what I anticipated (I discuss that experience in a post here), however the rebound I discussed above should help the cash flow return to normal and therefore I'm not planning on selling those assets.
I hope you find this post useful as you chart your personal financial course and Build a Financial Fortress in 2021. To see all my books on investing and leadership, click here.
Stay safe, healthy and positive.