Investments with Very Low Correlation to the Stock Market

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So far, 2020 has been extremely turbulent for investors. We’ve seen historic highs as well as steep rises and declines in single days. It’s been a roller coaster ride for sure.

While the stock market and traditional investments like mutual funds and ETFs remain popular and effective options, it’s very possible that you’re interested in having a portion of your portfolio invested in something that isn’t subject to the wild swings that we’ve seen recently with the stock market. 

While there are plenty of alternative investments available, some of them have a higher correlation to the stock market than others. Those with low correlation will be less impacted by the up and down swings of the stock market. It’s possible that your alternative investments could continue to increase in value or at least hold steady while the stock market may be declining.

Of course, it’s important to note that low correlation doesn’t mean that it’s necessarily a good investment. All investments come with risk, but the goal is to find investment opportunities with strong track records in addition to having independence from the stock market.

Alternative Investments with Low Correlation to Stocks

If you’re interested in finding some investment opportunities that can provide true diversification from a portfolio that involves a lot of stocks and mutual funds, here are five options that you might want to consider.

1. Fine Wine

While it’s certainly not the first investment that comes to mind, fine wine has a surprisingly strong track record. The Liv-Ex Fine Wine Investables Index has been tracking the industry since 1988 and the results have outperformed the S&P 500, including during downturns. Scarcity and aging are among the factors that help fine wine to increase in value with time. 

Although fine wine has a strong track record as an investment, it hasn’t been a practical or realistic option for the average investor. The average person isn’t likely to know which wines would make a good investment or when to sell part of your wine portfolio. In fact, most people wouldn’t know where to get started.

Today, investing in fine wine has been a realistic option for just about any investor thanks to Vinovest. As an investor, you can allow the experts at Vinovest to create a custom portfolio of wines based on your own investment goals. You don’t even need to touch the wine as Vinovest will store it in its facility for you.

Unlike many other alternative investments, Vinovest is open to all investors, not just accredited investors. The minimum investment is $1,000, which is lower than many other alternative investments.

As an investor, you’ll benefit from the expertise of the Vinovest team. In addition to creating a custom portfolio of wine for you, they’ll handle everything for you (this includes buying the wine, shipping, and storing it). Vinovest will advise you when it may be the right time to sell, but it’s your decision when to sell and you can sell at any time. Whenever you decide to sell a portion of your portfolio or the entire portfolio, Vinovest will find a buyer and manage the transaction for you.

While Vinovest is a relatively new company, the track record of fine wine as an investment is encouraging for potential investors. To learn more, please visit Vinovest’s website.

2. Farmland

Real estate is one of the most popular alternative investments, and with good reason. Countless millionaires have made their fortune through real estate.

While rental properties, commercial real estate, and even rehab/renovations can all produce excellent results, there are also some drawbacks to investing in real estate. Owning rental properties can be a major commitment if you’re managing the properties yourself. Real estate values can also be significantly impacted at times by the economy or stock market, and vice versa.

Another option for investing in real estate is to invest in farmland. Instead of renting out a house, apartment, or office to tenants, you’ll be renting the land to farmers. 

Farmland is another investment opportunity that has a surprisingly strong track record. Over the past four decades, farmland as an investment has outperformed stocks and bonds (source). Not only has it produced excellent returns, but farmland has also proven to be a very stable investment with very little correlation to the stock market.

There are many reasons to consider investing in farmland, including a likely increase in demand. The supply of farmland in the United States is always decreasing, and a growing population means that more food is constantly needed. Decreasing supply and increasing demand contributes to rising property values and better returns for investors. And of course, you can also make money from renting the farmland while you own it.

While farmland may be an attractive investment option, buying a large farm may not be something that interests you. Thankfully, there are more practical ways to invest in farmland.

In recent years, some crowdfunding platforms have been started specifically for the purpose of managing investments in farmland. Two of the leading platforms are AcreTrader and FarmTogether. Both of them allow investors to own a share of a specific farm. Investors earn dividends from rental income, making it an income-generating asset. Then a final payout is made when the property is eventually sold. Most of the investments on these two platforms have a target hold of 5-10 years.

Both AcreTrader and FarmTogether are currently open to accredit investors only.

To qualify as an accredited investor, you must meet one of the following criteria:

  • Earned income of $200,000 for an individual (or $300,000 combined income if married) for the previous two calendar years, with a reasonable expectation for the same level of income in the current year.
  • Net worth exceeding $1,000,000 (individually or combined with a spouse), excluding your primary residence.

The minimum investment will vary from one offering to the next, but they are generally in the $10,000 – $25,000 range.

Those who are not accredited investors do have some options, like investing in farmland or agricultural REITs, mutual funds, or ETFs.

3. Life Settlements

If you’re looking for an investment that is in no way influenced by the stock market or the economy, life settlements may be an investment that you want to consider.

This is an unusual investment and it can seem rather morbid, but if that doesn’t turn you off, there can be a nice upside to the investment. 

An investment in life settlements is basically an investment in life insurance policies. Someone may be interested in selling their life insurance policy for a lump sum rather than continuing to pay premiums and hold the policy. The price paid for the policy is typically lower than the death benefit but more than the current cash value of the policy. The investor would continue to pay the premiums on the policy and would collect the death benefit after the insured’s death.

There are life settlement funds that manage a portfolio of these investments. Most of them are only open to accredited investors, so this is not the best option for anyone who does not meet the qualifications of an accredited investor.

Investing in life settlements gives you the possibility of double-digit returns while investing in something with no correlation to the stock market.

4. Art

Traditionally, fine art has been an investment for the wealthy, but not a realistic option for the average person. However, Masterworks has changed that. 

Masterworks is a platform that allows anyone (regardless of whether you’re an accredited or non-accredited investor) to invest in blue-chip art.

Historically, blue-chip artwork (as measured by the Artprice100) has outperformed the S&P 500. While the work of artists like Andy Warhol has a strong track record as investments, most people don’t have the capital to buy pieces from famous artists. Thanks to Masterworks, you can own a share of a piece of art without the need to be an art expert or manage any aspect of it.

Masterworks purchases paintings that they view as a sound investment, and then they sell shares to investors. They intend to own the piece for roughly 3-7 years before selling it for a profit and paying investors.

Shares are sold for $20 each, but the minimum investment will vary depending on the offering. 

→ Related reading: Living Off Dividends: How to Use Passive Income to Cover Your Expenses

5. Cadence

Cadence is a platform that facilitates alternative investments. The offerings available through Cadence are short-term (generally a few months) and most of them will have a target annualized return of 10% or greater.

The investments available through Cadence vary greatly, but most will have virtually no correlation to the stock market. While many other alternative investments offer very little liquidity or even no liquidity at all, Cadence offers excellent liquidity thanks to the short terms of the investments.

The downside to Cadence is the fact that it is open only to accredited investors. The minimum investment is low (typically just $500), but many investors will not qualify since it’s only open to accredited investors.

Although Cadence hasn’t been around for very long (the company was founded in 2018), most of the investments have already gone full cycle since they are short-term. So far, Cadence has produced a historical APY of 10.75% with $0 in losses.

One Last Option: Gold

Gold doesn’t exactly fit the topic of this article because it does have some correlation to the stock market, but it is unique because it has an inverse correlation. Typically, gold is more likely to produce returns when the stock market is declining. While investing in gold may not help you to avoid ups and downs, it can serve as a hedge that will offset some of the risk of your other investments and also provide some protection against inflation.

There are many different ways that you can invest in gold, like mutual funds and ETFs. Another option is Vaulted. With Vaulted, you can easily purchase real gold bars that will be stored for you at the Royal Canadian Mint. You can easily sell your gold at any time you choose. Vaulted is open to all investors, accredited or non-accredited.

 

As you can see, there are some investment options out there that aren’t likely to be influenced by the stock market. While some of the options are only open to accredited investors, non-accredited investors do have some options as well (like Vinovest and Masterworks).

Remember that every investment comes with risk. This article is intended to present options, not to make recommendations. Be sure to do your own due diligence before making any investment decision.

READ NEXT: Real Estate Crowdfunding for Non-Accredited Investors