When evaluating an investment opportunity, it is important to remember the time value of money: the idea that it is better to receive a given amount of money now than at some time in the future. With this in mind, please note the following three time-sensitive components of opportunities available on different alternative investment platforms.
First, be cognizant of projects' lifespan, as different asset classes come with correspondingly different types of cash flows. Some investments – an example being peer-to-peer lending – will pay investors back in a matter of months, while others – examples being real estate and renewable energy financing – take years to decades to pay back investors. Of course, shorter-term investments come with reinvestment risk, the risk that opportunities with the same level of returns won’t be available afterward, which may mitigate the effect of the aforementioned difference in returns.
Second, see if there are any features on a platform that mitigate or eliminate time-related concerns. Some platforms offer secondary markets for investors, where you can sell your stake to other investors on the site after a certain period of time. For investments that take years to pay off, this can help make a long-term investment more palatable, knowing that there will be an option to sell out in the short-term.
Finally, look at how long funding takes to close for a certain investment, or for the average investment, on a given platform. Investments on some equity crowdfunding sites take months to fully fund projects, which means your money is committed, but not put to use, for an extended period of time. Investments on other sites, a notable example being YieldStreet, are able to put money to work quickly due to high demand for investment opportunities. Even if investments on both platforms offer the same returns over the same time once fully invested, the discrepancy in time until full funding means that YieldStreet would be better for investors.
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