Types of Investment Vehicles: Real Estate vs Alternatives | Yieldi (2024)

The goal of investing is to make money—and different types of investment vehicles do this at different rates and different levels of risk.

People invest for a variety of reasons. Some do it for a living, while others invest to put money away for their retirement. Everyone has a unique situation with unique goals. The important thing is that you have a financial investment strategy that helps you reach your goals.

Real estate has become a popular investment vehicle to help build wealth in the long run while generating cash flow along the way.

In this article, we will show you how investing in real estate compares to investing in alternative investment vehicles like stocks, collectibles, currencies, and more.

What Are Investment Vehicles?

Investment vehicles are financial structures that allow individuals and institutions to invest their money with the aim of generating returns over time.

These vehicles provide a way to channel funds into various asset classes, such as stocks, bonds, real estate, commodities, and more. Investment vehicles serve as conduits for investors to participate in different markets and opportunities while managing risk and optimizing returns.

Investment vehicles can take various forms, each with its own characteristics, features, and potential benefits. Some common types of investment vehicles include: real estate, stock, bonds, crypto, and mutual funds.

What Are the Different Types of Investment Vehicles?

There are many different fields and vehicles investors can use to make money. Every investor has their own niche that they focus on and understand. Some investors choose real estate, while some make money by using alternative investments.

The stock market is one of the most common ways to invest money. Most people build their retirement in the stock market by enrolling in a 401(k)s or Individual Retirement Accounts (IRAs), which can be used for real estate investments.

Some investors use art and collectibles to build their wealth. You can invest in gold, currencies, crypto, and NFTs—there are a ton of different ways to make money. Some are more volatile than others.

Alternative Types of Investments Other Than Stocks

  1. Bonds: Bonds are debt securities issued by governments, municipalities, or corporations. Investors who buy bonds are essentially lending money in exchange for periodic interest payments and the return of the principal amount when the bond matures.
  2. Mutual Funds: Mutual funds pool money from multiple investors to invest in a diversified portfolio of stocks, bonds, or other assets.
  3. Exchange-Traded Funds (ETFs): Similar to mutual funds, ETFs pool investors’ money to invest in a diversified portfolio of assets. However, ETFs are traded on stock exchanges like individual stocks, providing liquidity and flexibility.
  4. Real Estate Investment Trusts (REITs): REITs are companies that own, operate, or finance income-generating real estate properties. Investors can buy shares in a REIT and benefit from rental income and potential property appreciation.
  5. Commodities: Commodities include physical assets such as gold, silver, oil, agricultural products, and more.
  6. Options and Derivatives: Options and derivatives are financial instruments whose values are derived from an underlying asset.
  7. Certificates of Deposit (CDs): CDs are time deposits offered by banks with a fixed interest rate and maturity date. They are considered low-risk investments and provide a predictable return.
  8. Private Equity: Private equity involves investing in privately held companies that are not publicly traded. This often requires a higher investment threshold and longer holding periods.
  9. Hedge Funds: Hedge funds are pooled investment funds that employ various strategies to generate returns for their investors.
  10. Venture Capital: Venture capital involves investing in early-stage or startup companies with high growth potential in exchange for equity ownership.
  11. Cryptocurrencies: Cryptocurrencies are digital assets that use cryptography for secure transactions. Examples include Bitcoin, Ethereum, and many others.
Types of Investment Vehicles: Real Estate vs Alternatives | Yieldi (1)

Investing in Real Estate vs. Stocks

Investors have argued which is a smarter investment: real estate or the stock market. Many people claim that the stock market returns 7% annually, and the real estate market barely hedges inflation.

Yes, the stock market historically offers a 7% return on investment, but that doesn’t mean every year you are gaining that 7% return. In 2020, the stock market plummeted—do you think investors made a 7% return that year?

I doubt it.

Some years the stock market outperforms 7% by a significant amount, and sometimes it doesn’t. The same goes for real estate.

The difference between real estate and the stock market is the cash flow. Rental properties put cash in the owner’s pocket each month, while stocks only put cash in the owner’s pocket when they are sold.

But let’s entertain the argument and look at the numbers. Over the past 10 years, real estate has outperformed the S&P 500. Over the past 5 years, the S&P 500 has returned 23% more than the Vanguard Real Estate ETF. In the past year, the Vanguard Real Estate ETF has outperformed the S&P 500 by 4%.

Both are great ways to invest money with solid and consistent returns if invested responsibly. To each their own, but at Yieldi, we prefer asset-based investments like real estate.

Types of Investment Vehicles: Real Estate vs Alternatives | Yieldi (2)

Why Invest in Real Estate?

Investors have used real estate to diversify and grow their portfolios because of the benefits real estate investing offers.

Tax Advantages

Tax laws favor real estate investors. There are a ton of tax deductions for rental property owners including property tax, property insurance, mortgage interest, repairs, and maintenance and upkeep. You can even depreciate your rental properties over time to combat inflation.

Leverage Other People’s Money

One of the greatest parts of investing in real estate is that you can use other people’s money to do so. With real estate, you can purchase a $500,000 asset with only 20% of the funds. You can’t do that in the stock market. You need to completely fund your investments in the stocks.

Less Volatility

Real estate is a physical asset which makes it less volatile than stocks. Yes, the housing market can crash and the value of your home can decrease but you still have a physical asset that holds value and can still generate cash flow. The Vanguard Real Estate ETF is an index made up of commercial properties and is used to gauge the state of the housing market. The S&P 500 is 3 times more volatile than the Vanguard Real Estate ETF.

More Control

Owning a real estate property gives you much more control over your investment than stocks. You can make changes and improvements to your property to help increase the value of your investments. Another plus, as we mentioned earlier, all of the improvements and upgrades you make are tax deductible.

Risks of Investing in Real Estate

Without risk, there is no reward. Although real estate may be less risky than alternative investment vehicles, there are still some risks investors need to be aware of:

  • Bad locations: the community and comps to your property have a huge impact on its value.
  • Maintenance and upkeep: some homes come with underlying issues that could be expensive.
  • Potential vacancies: vacancies can be 1 month to multiple months, costing property owners to pay out of pocket.
  • Poor tenants: tenants who don’t pay on time or take care of your property can be a hassle.
  • Lack of liquidity: selling is a long process. If you need cash you can’t sell and liquidate the funds easily.
  • Structural risk: your property depends on the foundation to hold up. Structural damage can cost real estate investors.
Types of Investment Vehicles: Real Estate vs Alternatives | Yieldi (3)

Risks of Investing in Alternative Investments?

If you are going to invest in alternative types of investment vehicles, then you should know the risks:

Risks of Investing in Stocks

  • Equity risk
  • Volatility
  • Timing of the market
  • Capital gains tax
  • Corporate misgovernance
  • Trading suspension

Risks of Investing in Art & Collectibles

  • High costs and fees
  • Risk of asset being destroyed
  • No income until sold
  • Capital gains tax of 28%
  • Condition directly correlates with price
  • Difficult to compare comps

Risks of Investing in Currencies (Cash, Bitcoin, etc.)

  • Inflation risk
  • Price correlation
  • Timing of the market

Get Help from a Financial Professional

Deciding which type of investment vehicle to invest your money can be an overwhelming process. It’s a huge decision that will impact the rest of your life. Don’t make the decision on your own, get a second opinion.

At Yieldi, our financial experts will sit down with you, discover your goals, and help you build an investment strategy step by step to help you reach your goals.

Contact our team today to schedule an appointment!

Types of Investment Vehicles: Real Estate vs Alternatives | Yieldi (2024)


What are the two types of investment vehicles? ›

Investment vehicles are categorized into two, with each category having its subscriptions. The two categories are; direct and indirect investments. Direct investments occur when investors purchase a company and government-issued securities or purchase real assets.

What are the three main types of investment alternatives? ›

Alternative investments are supplemental strategies to traditional long-only positions in stocks, bonds, and cash. Alternative investments include investments in five main categories: hedge funds, private capital, natural resources, real estate, and infrastructure.

What are the main types of investment in real estate? ›

Real estate investments can occur in four basic forms: private equity (direct ownership), publicly traded equity (indirect ownership claim), private debt (direct mortgage lending), and publicly traded debt (securitized mortgages). Many motivations exist for investing in real estate income property.

Is real estate an investment vehicle? ›

Ownership investments include stocks, real estate, precious objects, and businesses. Stocks, also called equity or shares, give investors a stake in a company and its profits and gains. Real estate owned by investors can be rented or sold to provide higher net profits for the owner.

What are the main types of investment vehicles? ›

Types of Investment Vehicles
  • Stocks. A stock is an ownership stake in a company. ...
  • Exchange Traded Funds (ETFs) An exchange-traded fund (ETF) is another type of investment fund. ...
  • Bonds. ...
  • Target Date Funds. ...
  • Mutual Funds. ...
  • Certificates of Deposit (CDs) ...
  • Cryptocurrency. ...
  • Cash Equivalents.
Mar 24, 2023

What are the two main types of investment accounts? ›

The most common types of retirement accounts are traditional IRAs and Roth IRAs. Many brokers also offer specialty retirement savings accounts for small-business owners and self-employed individuals, such as SEP IRAs, SIMPLE IRAs and Solo 401(k)s.

What is the difference between alternatives and investments? ›

Because of their limited accessibility, alternative investments often have higher fees and expenses compared to traditional investments. For example, private equity and hedge funds typically charge high management and performance fees, which can significantly reduce investors' returns.

What is the most popular alternative investment? ›

Real Estate

Real estate is perhaps the most well-known alternative investment. Investing in real estate can provide ongoing cash flow and the potential for appreciation. Real estate generally has a low correlation to traditional investments such as stocks and bonds. Real estate investing can be done in several formats.

What are examples of alternative investments? ›

7 Types of Alternative Investments
  • Private Equity. Private equity is a broad category that refers to capital investment made into private companies, or those not listed on a public exchange, such as the New York Stock Exchange. ...
  • Private Debt. ...
  • Hedge Funds. ...
  • Real Estate. ...
  • Commodities. ...
  • Collectibles. ...
  • Structured Products.
May 7, 2020

What are the four most common types of investments? ›

There are many types of investments to choose from. Perhaps the most common are stocks, bonds, real estate, and ETFs/mutual funds.

What is the most profitable type of real estate? ›

5 Most Profitable Real Estate Ventures
  1. Residential Real Estate Development. ...
  2. Commercial Real Estate Investment. ...
  3. Real Estate Crowdfunding. ...
  4. Real Estate Technology ( PropTech) ...
  5. Short-Term Rentals and Vacation Properties.
Dec 28, 2023

What is the biggest risk to a real estate investment? ›

What is the biggest risk of real estate? The biggest risk in real estate is the potential for financial losses due to variations in property values. A downturn in the housing market or an economic recession can negatively impact property values and leave investors with losses if they need to sell or refinance.

What is an investment vehicle structure? ›

A structured investment vehicle (SIV) is a type of special purpose vehicle that earns a profit on the difference in interest between long-term securities and short-term debts.

How to choose an investment vehicle? ›

Some investment vehicles have high liquidity while others may not. Investors should pick according to their own liquidity requirements. 4. Risk taking capacity and risk appetite - Investors should analyse their own risk taking capacity and appetite when picking an investment vehicle.

What are private investment vehicles? ›

private investment vehicle . , in relation to a cardholder, means a body corporate or trust established by or on behalf of the cardholder for the purpose of managing or holding assets.

What are the examples of collective investment vehicles? ›

The commonest types of collective investment vehicle are unit trusts (called mutual funds in the US and most other countries), investment trusts (more accurately called investment companies outside the UK), exchange traded funds, OEICs, and REITs.

What are indirect investment vehicles? ›

Indirect Investments. A class of marketable securities. Unlike direct investments, which investors own themselves, indirect investments are made in vehicles that pool investor money to buy and sell assets. Examples of indirect investments include hedge funds, mutual funds, and unit trusts.

What are passive investment vehicles? ›

Passive investing broadly refers to a buy-and-hold portfolio strategy for long-term investment horizons with minimal trading in the market. Index investing is perhaps the most common form of passive investing, whereby investors seek to replicate and hold a broad market index or indices.


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