Like most people, your perception of investing might be limited to traditional investments. Most people go for bonds, stocks, and cash equivalents when considering an investment. While they are reliable and have good returns, you should think about alternative investments. As the name suggests, these investments fall outside traditional investment portfolios.
Like most investors, you should look for ways of diversifying your portfolio to increase returns. Alternative investments have recently become popular for these reasons. They offer unique opportunities and present distinct risks. Below are excellent alternative investments you should consider today:
1. Cryptocurrencies
Unless you haven’t been keeping tabs on recent developments, you’ve probably heard of the cryptocurrency craze. These are revolutionary assets backed by blockchain technology that has reshaped the traditional finance realm. Digital currencies, including Bitcoin and Ethereum, offer a borderless way of completing transactions.
Buying cryptocurrencies presents you with an opportunity to make substantial gains. However, while they offer great rewards, they are highly volatile. If you are new to this world, this guide by Learn About Gold can help you understand the basics of recent crypto coins backed by gold.
Venturing into cryptocurrencies allows you to diversify your portfolio beyond traditional investments. It also cautions you from inflation and currency devaluation. Because this market is still new, you should invest cautiously, research thoroughly, and consult experts before investing.
2. Real Estate Investments
You can build wealth and diversify your tangible assets through real estate investments. Most people prefer real estate because it is a tangible investment and provides short-term and long-term cash wealth-building opportunities. You should know the basics of investing in real estate, such as the following:
- Direct ownership: The primary investor has direct control over physical properties, including land, residential homes, or commercial buildings. You can make improvements at any time and collect rental income from tenants.
- Real estate crowdfunding: Crowdfunding platforms allow interested persons to invest in real estate projects as a group. Unlike direct ownership, you will own a fraction of the properties.
- Real estate investment trusts: You can also invest in real estate by purchasing REITs. REITs are investment companies that manage income-generating real estate investments. While there’s no direct ownership, you’ll earn dividends from rental income and other gains from the company’s residential, commercial, or industrial properties.
Apart from diversifying your investments, venturing into real estate is beneficial because of capital appreciation. Over time, your properties will most likely appreciate, especially if demand for the property increases due to population growth, economic trends, and developed infrastructure.
3. Peer-to-Peer Lending
Peer-to-peer lending is another unignorable force in the financial sector. This investment vehicle allows individuals to borrow and lend money without using traditional financial intermediaries. P2P platforms connect lenders to borrowers, enabling both parties to agree on favorable terms.
Investing in a P2P lending platform allows you to earn interest collected from different borrowers. P2P platforms often lend to individuals, startups, or small businesses needing financial boosts. The digital nature of P2P investing makes it a perfect option for those who want a passive source of income.
P2P platforms are beneficial in many ways. For starters, they offer high returns compared to traditional investments. You also get access to a wide range of borrowers. However, you should watch out for credit risks. Some borrowers can default on their loans, resulting in significant losses.
4. Private Equity
As the name suggests, this involves investing in privately-owned companies not listed on public stock exchanges. You should consider this investment option as it has the potential for high returns. You’ll most likely be engaging in actively growing businesses.
Private equity firms acquire ownership or a stake in companies with a view of improving their value through operational improvements, financial restructuring, and better management practices. Interested investors commit capital for a long period, which gives managers of these companies enough time to implement the investor’s ideas.
The benefits of investing in private equity firms are endless. For starters, you’ll have access to unlisted companies with glaring growth potential. You also get to diversify your investment portfolio beyond ordinary stocks.
However, you should be wary of the risks of this investment vehicle. For instance, privately owned companies can easily get liquidated. As such, you should conduct due diligence to ensure the company has a promising future before investing.
5. Commodities
You should also consider venturing into the commodities market. Commodities are essentially tangible assets that affect the global economy. Common commodities include precious metals like silver and gold, energy resources like natural gas, and agricultural products like coffee and wheat.
Diversifying these investments is beneficial in many ways. For starters, commodities are a hedge against inflation. Prices of most commodities increase as the cost of other products increases. However, the performance of commodities is less correlated with traditional investment options, like bonds and stocks.
If you are wondering where to access commodities, you can use several avenues. Exchange-traded funds are the best place to invest in commodities. They allow investors to view different commodities available in a specific sector. You can use future contracts to speculate on the future prices of commodities.
However, you should be wary of the risks of investing in commodities. For instance, commodity prices are very volatile. Price volatility can occur due to supply and demand imbalances, market sentiment shifts, and geopolitical factors. Weather changes also affect agriculturally based commodities.
6. Art and Collectibles
Art and collectibles are a distinctive investment option that has recently become valuable. Unlike other investments, they are tangible assets ranging from vintage coins and fine art to classic cars and wines. Venturing into arts and collectibles allows you to chase your passion as you make money.
Artworks have recently gained prominence and appreciation over time. However, before breaking into this market, you should know that the art market depends on art significance, cultural trends, and the artist’s reputation.
Endnote
Alternative investments are a perfect option for anyone looking to diversify their portfolio beyond traditional assets. Besides improving your returns, most alternative investments aren’t subject to inflation. However, they come with various risks and complexities you should understand for financial success.
