If you’ve got some financial liquidity, act smart and take advantage of alternative investments— the best way to save and grow money is to invest it.
With the current economic climate, investing is one of the best things you can do to protect your finances (whether you’re investing as part of a business, or as an individual investor.
Having a diverse investment portfolio is one of the best things you can do in order to protect your financial future better.
Many people are considering investing in alternative investments instead of traditional investing methods, due to the recent economic turbulence surrounding investments that were once considered ‘safer.’
However, what is regarded as an alternative investment, and how can you get started when diversifying your investment portfolio?
What Are Alternative Investments?
An alternative investment is simply a form of investment that does not fit into traditional investment methods.
Traditional investment methods include stocks, bonds, and cash. Contrary to popular belief, real estate is not a conventional investment.
Real estate, amongst other investment forms, is considered to be an alternative investment.
Despite being a currency, cryptocurrency is also an alternative investment, as it varies from traditional cash.
There are many reasons why both institutional and accredited investors are placing their trust in alternative investments.
Understanding Alternative Investments
The main types of investors who invest in alternative investment types tend to be individuals who have a high net worth, or institutional investors.
There are multiple factors that contribute to this – they can be very high-risk in nature, they can be very complex, and there is also a lack of regulation regarding many alternative investments.
Many alternative investment forms have a very high minimum investment cost, making them inaccessible to a lot of investors.
They are also harder to turn into an investment, as they are usually hard to establish performance data and hard to attract buyers.
This means that they are harder to turn into a profit, as they are more illiquid.
Furthermore, it’s difficult to truly assess the value of many of these alternative assets, particularly collectibles.
However, many investors who are able to invest in these alternative investments are doing so for a few key reasons.
For example, although alternative investments have a high initial investment fee, transaction costs are typically lower.
Many alternative investments have a much higher return potential, so you may get more back for the money that you do end up investing.
They are also less affected by market changes, and many alternative investments such as farmland or commodities will never really have a dip in interest as they are needed.
This means that alternative investments may offer significant protection against inflation, which has been a huge problem lately and has been a huge causative factor in the cost of living crisis.
Alternative investments can have plenty of pros and cons depending on the resources you have at your disposal, and what kind of returns you’re looking for.
They represent an entirely different investment class than traditional investment forms, meaning they have different tax rules.
Depending on your goals, this may work out better or worse for your portfolio.
But what are the most popular forms of alternative investment, and how can you get started?
Most Popular Forms of Alternative Investments
If you’re thinking of investing your money into alternative investments, here are 5 of the most popular types to get you started.
Real Estate
Although alternative investing may have a reputation for being unreliable and needing higher initial investment costs, real estate is one of the most accessible forms of alternative investment.
In fact, it is so accessible and common that most investors do not even realize that real estate is alternative investing.
Real estate investing can be made up of numerous investment forms, such as property flipping or renting the property out.
One of the main reasons why people might invest in real estate is that it has the capacity to provide stable cash flow.
The real estate market is also comparatively more stable than other types of alternative investment.
Real estate investment has worked well for investors for decades now and is always a strong asset to have as part of an investment portfolio.
Whether you invest in privately rented property, student property, commercial property, or another industry, there is a large potential to have a great return on investment.
Hedge Funds
When compared to an alternative investment like real estate, hedge funds are one of the more inaccessible forms of investment for ordinary investors.
Hedge funds usually trade liquid assets, and use a variety of different strategies with the aim of increasing the amount of return on investment.
They are incredibly exclusive and are only available to institutional investors and individuals with high net worth.
If you’re an individual investor and looking to diversify your portfolio, this may not be the best investment choice for you.
Cryptocurrency
Cryptocurrency is a transformation of traditional currency investment and is emerging as one of the most lucrative and popular alternative investments on the market.
Cryptocurrency only exists digitally and is mined using energy that is generated via a computer.
However, due to the popular nature of cryptocurrencies such as Bitcoin and Ethereum, there are many crypto scams on the market recently, so you need to remain vigilant if you choose to invest.
It is also easy to steal and hack and isn’t subject to government regulations.
The cryptocurrency market is also quite unpredictable, so you need to be prepared for that if you choose to invest in crypto.
Commodities
Commodities trading and investing has been a popular way for high net-worth individuals to invest for centuries.
In fact, most countries set up commodities investment exchanges in the 17th and 18th Centuries.
The two types of commodities that can be invested in are often referred to as ‘soft and hard.
- Soft commodities refer to items that are grown or reared, including livestock, meat, cotton, coffee, wheat, and grain.
- Hard commodities usually mean resources that are mined or extracted, such as coal, gas, oil, and metals. Many investors choose commodities to provide a hedge against inflation.
Art and Collectibles
Arts and collectibles are one of the most fun types of alternative investments, however, they tend to not generate a high return on investment.
This could include fine wines, vintage cars, art, stamps, and antiques such as vintage jewelry.
Many people choose this form of alternative investment as you can get enjoyment out of collecting and sourcing rare items. However, it is also a very risky form of alternative investment.
There are high costs of acquisition and evaluation, and if your collectibles become lost or destroyed you have lost your investment entirely.
It takes a lot of experience to succeed at investing in art and collectibles.
Final Thoughts
Alternative investments come in a lot of different forms and vary in degrees of accessibility depending on the type of investor you are.
However, many business owners are finding that investing in modern investments is a great way to protect their finances against inflation and diversify their portfolios.
If you’re looking for a way to strengthen your financial security, alternative investments may be the pathway for you!
