Alternative investments, or alternatives, are financial instruments that are different from traditional asset classes such as stocks, cash equivalents, indices, and bonds. Other types of alternative investments have been around for an extended period and are popular with seasoned investors. For example, commodities such as gold have been part of the trading economy for years now and are used to hedge against inflation by experienced traders. Venture capital has been around since the 1950s, allowing investors to participate in various projects that promise lucrative returns.
Alternative investment opportunities are continually emerging, bringing forth new assets in the market, allowing investors to grow their funds in different ways. Some of the prominent alternatives popular to new and experienced investors are digital assets, commodities, art, real estate, luxury items, and a whole lot more.
Why alternatives are popular with modern investors
Investment portfolios that are made up of traditional and alternatives are created to maximize returns while minimizing potential risks. This is why investors should combine different asset classes that have little to negative correlation. Diversification should always be an essential part of any investment strategy to reduce the overall risk of portfolios.
According to the book — Alternative Investments by Baker and Filbeck, “A primary goal of alternative investing is to reduce risk through diversification. One of the distinguishing features of most alternative investments is their lack of correlation with the major traditional asset classes of public equities and public fixed-income assets. A portfolio containing a variety of alternative assets may offer reduced risk without a proportionate reduction in expected return.”
Some of these alternative investment vehicles can leverage economic downturns or inflation. For instance, gold is the most popular alternative as it is commonly seen as a “safe haven” by many investors. Historically, alternatives such as gold are primarily available to the affluent class, but some are now accessible to everyone because of technological advancements.
One of the recent trends in alternative investments has been introducing new assets as liquid alternatives, digital assets, and ETFs. These financial products have allowed retail investors to participate in the investment markets.
Alternative investments available today
For investors who have high net worth and can invest large amounts of money, the most popular alternatives that they can try are private equity funds, real estate, luxury items such as diamonds, and hedge funds. These assets require substantial investment to participate in. For retail investors, investing in such assets is challenging. Thankfully, various platforms offer investment opportunities to retail investors.
“Alternatives can help anyone grow a portfolio, whether you’re a retail investor or a large institutional one. For retail investors, alternative investments can be their only choice to participate in financial markets. Thankfully, various platforms offer different investment options that allow anyone to participate, even without the need for huge capital,” shares Peter Krause, Chief Marketing Officer of Whiteside Capital Group, a financial technology firm that specializes in providing collateralized financing to businesses and high net worth individuals.
For example, digital assets can now be easily bought through FinTech innovations. Digital assets do not have high entry barriers and can be easily accessed using the internet and a smartphone. Now, anyone can easily invest in various digital asset opportunities. Apart from that, some platforms also allow investors to leverage on luxury items without the need to shell out a substantial amount of cash.
According to a paper written by Douglas Cumming and Yelin Zhang, “alternative investments have introduced new asset classes in the market, including wine, art, angel investments, venture capital and private equity, private debt, hedge funds, crowdfunding, and IPOs. These assets have introduced various opportunities, allowing anyone to grow their funds without needing to participate in capital markets.”
Are alternative investments good for you?
There’s no such thing as “100% safe” in the world of investment and trading. All assets, traditional and alternatives, have risks involved. However, alternative investments are popular to hedge portfolios from inflation or economic downturns. Be sure to do extensive research and arm yourself with knowledge about any market you’re investing your money in.
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