Usually, people think of stocks, bonds and traditional investment options that can get one a standardized return in the long-term. However, there are several forms of investments which might sound slightly unconventional compared to regular portfolio investments, mutual funds and ETFs. Still, these investments offer a viable alternative to regular forms of investment and are not unknown to the average investor.
Popular Alternative Investments
Here we will discuss some popular forms of alternative investments that can get returns having little co-relation with parameters for regular stock and bond investments. When developing a portfolio, one should look for alternative investment options as well to understand if they can benefit from them as well.
Gold:
In the world of investments, it may not be an exaggeration to say that when the going gets tough, gold gets going. It is borne out by the historical returns of this age-old investment asset that has really stood the test of time and still works as a great balancer of your investments in this day and age of sophisticated instruments of investment.
Gold is a great diversifier, and when stocks are not doing well, you can always rely on gold to be your rescue asset or secret ingredient to the recipe of financial success. Gold may be known to everyone as a valuable asset and a traditional form of investment. Still, few care to find out all the advantages it affords and use this class of valuable asset to their maximum advantage.
Gold is a liquid asset that can be traded in the commodities market or traditional non-regulated markets in its physical form. It can be traded online, bought and sold in the form of Gold ETFs or mutual funds that invest in gold mining stocks. Gold works very well as a hedge against inflation and offers long term storage for value. You only need to learn more about where can gold fit in with your investment plans and how you can benefit the most from this evergreen asset.
Real Estate:
The traditional form of investing in real estate is to buy a piece of land and sit back to let it bring you solid returns in the long run. Usually, people prefer buying land where some important project is set to come up, or they hope to get rental income on their purchase of a home. After earning rental income for several years, investors can sell their property to gain from appreciation and invest somewhere else.
One can also hire a property management company to look after your rented property because it can be a headache to manage what comes with rental income. You have to pay for maintenance issues, address concerns of your tenants, to range from security issues to plumbing. Alternatively, you can also invest through online investment platforms that deal with real estate. However, it is best to do your homework before diving in.
Peer-to-Peer Lending:
Also known as P2P lending, this is a form of online lending where a pool of investors fund loans for all kinds of uses. You can become a part of this pool of investors and fund loans to borrowers who qualify for the criteria agreed upon beforehand.
Substantial gains can be had from this kind of investment as you received fixed repayment each month. Often the returns are greater than traditional forms of investments, but there is an element of higher risk as well.
For example, you are funding loans in Dublin to borrowers who are looking for P2P lending because traditional banks would not lend to them because of poor credit scores. Such borrowers are more likely to default on their loans, and it could impair all your gains made with P2P lending.
Advantages of Alternative Investments:
It is always wise to diversify your investments, and alternative investments provide one of the best ways to do that. It is important to research individual forms of investment and find out their relative merits and demerits before making a decision. For example, gold is a great diversifier asset because it has a very low correlation with most other forms of investment assets. This holds especially true for stocks.
This, however, need not be true for all forms of alternative investments and depending on your risk tolerance and other factors you need to decide.
Disadvantages of Alternative Investments:
There are several disadvantages as well that vary from one asset class to another. For example, gold has rather high liquidity, but you need to be aware of gold price cycles which work independently of other conventional asset classes.
When you need to liquidate your gold-related investments, it may not be performing so well despite its high liquidity. Similarly, with real estate when you may want to liquidate it after a good deal of appreciation, there may be no buyers as it has perhaps the lowest liquidity among assets.
Conclusion:
It is always wise to compare the pros and cons of investing in specific alternative investments. Only after an analysis of how they fit in with your investment needs, risk tolerance, liabilities and investment goals, diversification outlook, you should make a decision.
Alternative investments can be a great addition to your portfolio and a great way to diversify your investments. You only need to be careful with your choices and make sure that you have a balanced portfolio, and alternative investments do not affect your investment outlook negatively.
