Investing is one of the best things you can do for your finances, whether you are running a business or are an individual investor. Many financial commentators give advice, mainly on the common types of investments that people buy into. When many people think of investing, they think of stocks, bonds and cash. However, alternative investing could be a very lucrative path if you invest correctly. However, what is an alternative investment, and how could it be financially beneficial to you?
What Is An Alternative Investment?
An alternative investment can be described as any type of investment that isn’t stocks, bonds or cash. They are very different from traditional investment methods, because they aren’t easily sold or converted into cash. Alternative investments are becoming more popular amongst retail and individual investors because they are an incredibly diverse asset class. If you’re looking to expand your investment portfolio, alternative investments may be something that you want to look into.
But what are common examples of alternative investments, and where can you start? Here are some of the most popular alternative investments on the market today.
Private Equity
Private equity is one of the broadest categories of alternative investments, because there are many opportunities within it. It usually involves capital investment into private companies that aren’t listed on a public exchange. There are many different types of private equity, including:
-Venture Capital, which focuses on start-ups and early stage companies
-Growth Capital, which helps mature companies expand on their success
-Company Buyouts – buying a division of an already established company.
There could be many benefits of putting your money into private companies – private equity companies often greatly support the companies that receive investment by mentorship and sourcing talent.
Hedge Funds
Hedge Funds are a type of investment fund which deals with exclusively liquid assets. It usually employs various investment strategies with the goal of making a very high return on investment. Many people who manage hedge funds are usually experts in their field, with specialist skills such as long-short equity and quantitative strategies. However, there is a big downside to investing in a hedge fund because they are very exclusive. They are only available to institutional investors, such as pension funds and people with a very high net worth. Therefore, this may not be the best option if you are looking for a simple investment.
Commodities
Investing in commodities would usually involve natural resources, such as oil, gas, precious and industrial materials, and agricultural products. With the recent high rates of inflation, this may be a good investment option as it is usually unaffected by it. The value of your investment would rise and fall with supply and demand, which could potentially be very lucrative as there is a huge potential to make a huge return on investment. Commodity investing has been happening for thousands of years – many counties set up early commodities investment exchanges back in the 16th and 17th Centuries.
Real Estate
A lot of people believe that real estate is a traditional investment – however, it is actually considered an alternative investment. Real estate is the largest type of alternative investment, and the most common. Real estate is a very unique form of investment. Property owners receive cash flow from rent, just like bonds. They also have equity in the property, which is a very good characteristic for an investment. However, there are a lot of skills that go into becoming a real estate investor – knowing when to invest, and what properties are worth the investment can sometimes be very difficult.
Collectibles
This is also a popular type of alternative investment, however, there is a high amount of risk when it comes to investing in collectibles. This involves buying material goods and hoping that the value will increase over time. This could include fine wines, vintage cars, art, stamps, and antiques. While this type of investment seems more fun than other forms, it may also be more economically dangerous. There are high costs of acquisition and evaluation, and if not stored properly, you risk the destruction of your assets. You may need to attain lots of experience before you become good at investing in collectibles.
Farmland
Farmland is often considered to be a blend of commodities and real estate. Farmland has become one of the main things alternative investors look into when they’re diversifying their portfolio. You can reap the benefits of owning physical, tangible land, you have the potential of having cash flow from the profits the farm makes. There are many opportunities to make a viable business out of a farm as well, if you’d be interested in working on it. For example, many people make a lot of money out of farm shops and letting businesses use the land. Farmland could be an incredibly effective investment if utilised properly.
Cryptocurrency
Cryptocurrency has become a household name in just a couple of years. It is now one the leading ways in which investors are investing their money. Even though it is a form of currency, it is still an alternative method as it differs from the traditional stocks and bonds. Although there are some risks to investing in cryptocurrency (such as a highly unpredictable market) it may provide capital appreciation opportunities and passive income. There are many forms of cryptocurrency on the market right now that have massively appreciated in value, such as Bitcoin.
Gold
Gold is considered one of the most effective investment methods that work as a hedge against inflation. It is one of the most sought after tangible assets and many people predict that it will one day take over stocks. There are many ways in which you can invest in gold, such as physical gold, gold accounts, gold exchange-traded funds, or gold mining stocks. If you’re an individual investor, investing in physical gold is probably the best gold option for you.
Individual and business investors alike may benefit from diversifying their portfolio with alternative investments. For a business, having a diverse range of investments may act as a form of insurance against inflation and an unstable market. Just like export credit insurance may protect you against clients no longer being able to pay you, your investments could secure cash flow and equity if your business has a rainy day.
Although some individual investors may not be able to secure all of these alternative investments, gold and real estate can be very profitable in individual investment portfolios. Diversifying your portfolio with alternative investments may be a good way to further strengthen your financial security.