Investing is an important aspect of your overall financial health! Investing usually means stocks, bonds and mutual funds, but investors can also take advantage of alternative assets.
What are alternative investments and how can they help to diversify your portfolio? Read on for a guide to the world of real estate, cryptocurrency, private equity and more.
Who Needs Alternative Investments?
It’s possible for practically any portfolio to benefit from alternative investments, but in general, these alternative asset classes appeal most to investors who want a more diverse portfolio and don’t need to access liquid funds. Alternative investments can also be a good choice during times of volatility in the stock and bond market—although keep in mind that as always when it comes to investing, there’s never a guarantee of return.
Property is an asset that tends to reliably appreciate over time, so it’s no surprise that real estate is a popular choice for alternative investors. If you don’t already own a home, consider starting there. Purchasing a house or apartment and renting it out is another option: netting you future sale value as well as regular income. On the other hand, if you’ve got DIY skills or don’t mind paying someone who does, house-flipping is another way to turn a profit on property. You can also consider real estate investment trusts (REITs), for a less active means of real estate investment—ask your financial advisor for more information on this and other passive property investment strategies.
Offering a unique value to investors, hedge funds are designed to invest in a way that reduces exposure to the broader stock market trends. This makes hedge funds a strong contender for investment diversification; and although hedge fund fees are usually much higher than traditional fund fees, the return on investment tends to be higher as well. Do keep in mind that only institutional investors can access hedge fund investments, so you will likely need to work with an accredited individual in order to take advantage of this alterative investment.
When you invest in a private company not listed on a major public exchange, that’s known as a private equity investment. A private equity firm will offer accredited investors the chance to buy shares of the firm’s portfolios. If you’re not working with an accredited investor, it’s also possible to access private equity investments via an exchange-traded fund (EFT) that tracks the performance of a private equity firm—so while you’re not directly investing in the firm, you’re still getting exposure to the private equity market which can act like an alternative investment to further diversify a portfolio.
An increasingly popular alternative investment, cryptocurrencies offer individual investors the chance to gain exposure to crypto in a number of ways. Investors can directly purchase a cryptocurrency such as Bitcoin or Ethereum, or they might choose an exchange-traded fund that tracks the performance of the crypto market. There are also cryptocurrency coin trusts, although beware that this particular investment vehicle involves higher volatility than other options. Whatever investment vehicle you choose, it’s a smart idea to speak with a financial expert about what’s ahead for the ever-changing landscape of crypto before making any major investing decisions.
While we often think about investments in terms of intangible assets, there’s a whole world of alternative investments based around physical items. Collectibles like baseball cards, old toys, fine art and so on are just a few of the items which alternative investors might want to research. Keep in mind that while investing in collectibles can be fun, it often requires specialist knowledge plus plenty of time and upkeep to see a return on these kinds of investments. Furthermore, if you are interested in collectibles, consider an insurance policy that offers additional protection from damage or theft for your valuables.