Famed investor Michael Burry made headlines this September for a stark warning about the pitfalls of passive investing. Best known for calling the top of the U.S. housing market in the mid-2000s — an achievement chronicled in the film, “The Big Short” — Burry unleashed a tweetstorm warning that passive ETFs and mutual funds were helping push the stock market to unsustainable levels.
Burry didn’t exactly call a top or say investors should cash out of their index funds now. But he did predict a reckoning, sooner or later.
That ought to be enough to make investors all-in on passive stock market vehicles think twice about their strategy. The fact is, the average investor has better access to a diverse and potentially profitable array of investment opportunities today than ever before. There’s no reason to put all your eggs in one basket anymore.
Michael Burry of Scion Asset Management
So, whether you’re inclined to listen to Burry or not, it’s time you reassessed your investment mix. These six investment ideas could serve you well in 2022 and beyond.
1. Residential Real Estate
You’re probably aware that residential real estate prices jumped in many markets during the COVID-19 pandemic.
In many cases, “jumped” is an understatement. “Skyrocketed” is a better word.
But great deals still abound, especially among the vast supply of single-family investment properties in lower-cost markets that haven’t seen crazy price appreciation in the past two years. Despite what you may have heard, getting in on these deals doesn’t mean submitting all-cash offers for 20 percent higher than the seller’s asking price. In many markets, real estate investors can gain a foothold with down payments as low as 10 or 20 percent of the purchase price.
2. Cybersecurity Firms
The cybersecurity industry has been a darling of “smart money” investors for many years. Who can blame them? With new threats emerging every week and the rate of increase of data breaches showing no signs of slowing, the good guys look like a smart bet.
Not all cybersecurity companies are the same, of course. Like every industry, this space has winners and losers. Before you build out your digital security portfolio, do your due diligence and pick stocks likely to outperform the sector (and broader market) in 2022 and beyond.
3. Cryptocurrency
Yes, cryptocurrency values have increased a great deal recently.
No, it’s not too late to cash in on the crypto boom.
If you’re new to crypto, you first need to understand the difference between legitimate and not-so-legitimate coins. You also need to understand the factors that influence coin usage and adoption.
For example, a concentrated holding pattern is a warning sign. If ownership of a new or less well-known coin seems to be dominated by just a few holders, that could be a sign of a scam.
This is a big subject, so do your research. You can always get your feet wet by picking up a few slices of “blue chip” coins like Bitcoin or Ethereum. Later, after you’ve gained confidence and knowledge, you can move to more exotic and possibly higher-reward alternatives before others discover them.
4. Cannabis and Downstream Plays
The cannabis industry is booming too. While nationwide legalization in the U.S. is not yet a foregone conclusion, many believe it’s coming. In the meantime, states are taking matters into their own hands and decriminalizing or legalizing cannabis for recreational use.
Even if you don’t believe the hype that cannabis is the investment opportunity of the century, it’s clear that the industry has a great deal of potential. Some risk-shy investors prefer “downstream” opportunities — companies specializing in fertilizer, hydroponics, lighting, and industrial real estate — rather than cannabis companies themselves.
5. Precious Metals
Before there was crypto, there was gold. And silver. And platinum. And palladium. And — okay, you get the idea.
Precious metals have intrinsic value because their supply is finite. That means their prices will always find some level of support. By contrast, the value of any given stock can always go to zero if the company fails.
Like cryptocurrency, precious metals prices are volatile. Just as you shouldn’t go all-in on passive index investing, you shouldn’t put 100 percent of your wealth in gold and silver. But because precious metals prices don’t closely follow stock prices, having some of your portfolio in this asset class provides good protection against the stock market’s ups and downs.
6. Investment-Grade Artwork and Wine
These assets belong to a broader asset class most people call “collectibles.” They’re different in important ways, of course. Art is meant to be observed while wine is meant to be consumed.
But both are alike in their ability to hold and grow value over time. That’s what sets them apart from “common” artwork and wine, like carnival sketches and $3 supermarket bottles.
Investment-grade artwork and wine have something in common with precious metals too. Their prices don’t closely follow stock prices. As a result, they have excellent diversification potential.
One more thing. Single works of investment-grade art can sell for millions of dollars, and single bottles of investment-grade wine can sell for tens of thousands of dollars (if not more). Fortunately, it’s possible to buy fractional shares of both types of investments through specially designed digital investing services. You don’t have to be super-rich to participate in this particular opportunity.
Take Control of Your Wealth in 2022
Each of these investment ideas gives you an edge over fellow investors who prefer to “set and forget” indexed investments that rise and fall with major indexes.
Those investors are content to simply match the broader market, and that’s okay for them. You, on the other hand, are not satisfied by doing only as well as the next person.
Whether your real passion lies in residential real estate, precious metals, cryptocurrency, or some other asset class, you’re willing to put in the work and reap the rewards. While you should never invest money you can’t afford to lose, you shouldn’t allow yourself to be captive to the naysayers who claim there’s never a good time to move beyond passive index investing. There’s a whole world of investment opportunities out there, just waiting to be explored.
