At some point, businesses will need to create additional income sources from their growing profit. Usually, this means expanding product lines or exploring new market territories. However, it could also mean investing in traditional securities like stocks and bonds, as well as alternative investments such as cryptocurrencies. Business owners of any size can access these investment options, and their returns can set a growing business apart from a failing one.
Traditional investments
Decades of financial history have produced solid instruments now known as traditional investments. Traditional investment vehicles include financial market assets like stocks, bonds, Exchange-Traded Funds (ETFs), and mutual funds. They refer to asset classes available for public trading through established exchanges like stock markets. These investments gain advantages from mature markets with comprehensive historical records and strict regulatory supervision, which ensures clear visibility and investor safety.
Stocks, bonds, and cash are the most common examples.
Stocks
Stocks represent ownership in a company. Investors who purchase stocks acquire a company equity share, enabling them to gain returns from stock price growth and dividend payments.
Bonds
Bonds function as fixed-income securities which enable investors to lend money to governments, corporations, or other entities. Bondholders earn periodic interest payments throughout the bond’s term and receive their initial investment back when it matures.
While stocks carry higher risk levels than bonds, their returns tend to be higher. In contrast, returns from bonds are usually more stable and predictable.
Cash
Savings accounts, together with certificates of deposit and money market funds, represent the most secure investment choices available. Cash and cash equivalents may provide low returns, but they protect capital and ensure liquidity, so they remain essential for portfolio diversification.
Traditional assets like stocks are more susceptible to economic conditions and, during periods of economic downturns, may not provide substantial returns.
Alternative investments
The term “alternative investments” refers to asset types that exist beyond conventional stocks, bonds, and cash financial instruments. These investment options exhibit minimal to zero correlation with standard market assets. They also cost more, but deliver higher returns and unmatched portfolio diversification benefits that become essential for retirees.
Alternative investments usually lack liquidity, which makes quick purchasing and selling difficult. The returns from these investments also take extended periods and require deeper understanding because their complexity and higher risk profile.
While real estate and cryptocurrency are among the most well-known examples, many other types of alternative assets also exist.
Real estate
The promise of high returns makes real estate an attractive investment opportunity for many investors. Real estate fails to match long-term stock market returns, but delivers better risk-adjusted performance than traditional markets. It also provides extra earning possibilities through rental income and mortgage financing leverage for property purchases.
Investors use real estate to diversify their portfolios because it serves as a protective measure against inflation. Home values usually increase faster than inflation rates, while rental prices tend to match inflation rates. However, investors may face difficulties when high inflation reduces sales velocity, which complicates realising profits from elevated real estate prices.
Another way for businesses to get in on this option is to invest in real estate investment trusts (REITs), which function similarly to mutual funds by enabling investors to gain real estate income through dividends and share value appreciation without buying properties directly.
Cryptocurrency
Cryptocurrencies have gained recognition thanks to their significant potential for rapid growth. The crypto market surpassed other markets in 2024 as Bitcoin achieved a 125% return, much higher than most traditional stocks. Bitcoin and similar cryptocurrencies with practical applications are thought to withstand inflationary pressures. These forms of cryptocurrency are scarce and do not face inflationary pressures like Fiat currencies, thus providing the possibility to maintain purchasing power in the long run.
Investment in cryptocurrency can take many forms. Some companies buy and hold digital assets as part of their financial strategy, similar to the actions of Tesla and MicroStrategy. Others accept crypto payments, allowing them to reach new customers and reduce reliance on traditional banks. Businesses can also invest in crypto through funds, ETFs, or blockchain-related projects.
Another way businesses can gain exposure to cryptocurrency is through SSAS pensions. A Small Self-Administered Scheme (SSAS) is a workplace pension that gives owners and directors more control over their retirement funds. Unlike regular pensions, an SSAS is managed by the company itself, without assistance from a bank or pension provider. It also allows directors to buy up to 5% of their company’s shares or take out a loan from the pension fund to support business growth, often at lower interest rates than bank loans. SSAS pensions can invest in a wide range of assets, including cryptocurrencies, giving businesses more flexibility in how they grow their investments.
Private equity
The majority of investors understand private equity to mean ownership of shares in privately held businesses that operate outside of public stock exchanges. The most prominent private equity funds require minimum investments that reach seven- or eight-figure amounts, which prevents all but the wealthiest businesses from participating.
However, the private equity market now offers more choices for small investors who want to invest in private companies. Investment platforms such as Yieldstreet and Hiive provide access to diverse private investment opportunities that cannot be accessed through public markets.
Commodities
Commodities represent fundamental physical assets that serve as essential ingredients for products and services across the economy. While gold is perhaps the most well-known commodity investment, particularly during periods of inflation or market volatility, the commodity market encompasses much more. These include:
- Base metals like copper and steel used in construction and manufacturing.
- Energy commodities such as oil and natural gas that power our world.
- Agricultural products, including corn and soybeans, that feed the global population.
For businesses looking to enter the commodities market, exchange-traded funds (ETFs) offer an accessible entry point. These investment vehicles function similarly to mutual funds and track commodity prices without requiring direct ownership of physical assets. Professional portfolio managers often recommend including commodities in investment portfolios because they typically move independently of traditional investments like stocks and bonds.
Private lending
Private lending, commonly referred to as peer-to-peer lending, represents any lending activity outside traditional banking institutions and open markets. Private or public companies can secure funding from investors to expand their business operations. Investors receive financial returns from the loan’s principal repayment and interest payments throughout its lifetime.
Businesses wanting to explore this option need to locate a trustworthy peer-to-peer lending platform. These websites connect lenders with borrowers and present the option to fund a single loan or distribute capital across multiple loans.
Choosing the right investment mix for your business growth
Your business should create a diverse investment portfolio that supports the company’s objectives and risk capacity. Traditional investments, including stocks and bonds, provide market stability, but alternative investments present growth possibilities along with protection from market fluctuations. A financial advisor with expertise in business investments can help you develop a tailored strategy that meets your company’s current financial requirements and future expansion goals.
