So you’ve been smart, setting aside money for savings and investments over the years. But when the stock market hits the roller coaster, you may be among the many looking for somewhere to put some money that isn’t so reliant on the whims of Wall Street and conflicts half a world away.
That’s where alternative investments come in. We’re taking a closer look at these less common places to put your money and how they can help diversify your assets.
What is an Alternative Investment?
There’s no “official” definition of an alternative investment. It’s generally used to refer to any sort of investable asset beyond the traditional stocks, bonds, mutual funds, and other common financial products.
Alternative investments may be physical objects you can touch and see or exist only on paper or in cyberspace. Their primary goal is to offer diversification to a well-rounded portfolio – in other words, assets that don’t necessarily lose value as the stock and bond market goes down or gain value as it goes up.
Why Should I Diversify?
You know the old saying about not putting all your eggs in one basket? That’s especially true when it comes to your investments.
The best performing portfolios over the long run contain a diverse mix of assets, from stocks and mutual funds to bonds, CDs, annuities, and of course, alternative investments. That way, you should be assured some protection even if certain assets don’t grow as you expect. Smart diversification is the key to safeguarding your portfolio from things outside your control – a financial crisis, a war, a real estate crash, and more situations than you can imagine.
6 Best Alternative Investments To Diversify Your Assets
Now that you understand what alternative investments are and why they’re so valuable, you may ask which are the best choices. As always, your personal financial situation will dictate a great deal about your best investment choices. But these six options are among the best choices for investors.
Real estate is a physical asset and, in most cases, has value whether or not you plan on selling it at a given moment. Real estate can produce income and serve as a hedge against inflation, especially when financed with a mortgage. It’s one of the most common alternative investments because almost everyone understands it in some capacity.
Your home may count as a real estate investment in some cases; you may operate real estate as a rental property, lease it for agricultural use, or any other number of things. Real estate’s ability to be tailored to your needs is one of the reasons it’s such a popular choice.
Unless you’ve been living under a rock for the past few years, you’ve likely heard something about cryptocurrency, or ‘crypto.’ The biggest and most widespread of these is Bitcoin, though in the decade or so since it was introduced, literally dozens of others have sprung up. The most well-known competitors include Ethereum and Litecoin, among many more.
Cryptocurrencies use technologies like the blockchain and smart contracts to offer a decentralized financial network, theoretically separate from any ‘normal’ currency. While many approach cryptocurrency as pure speculation, it can also serve as a hedge on U.S. dollars or other currency as well as a forward-looking investment.
This can refer to a broad group of alternative investments, from the physical to the purely financial. Commodities investors can invest in options or contracts involving the price of everything from wheat to oil or buy physical commodities like gold or other precious metals to store themselves.
Certain commodities, particularly gold and oil, have historical relationships to other investments or stores of value like the stock market or the U.S. dollar. Investing in commodities can offer the opportunity for speculative gains, income, and a hedge of value – sometimes all at once!
Art and Collectibles
Everyone knows art can be valuable. Still, few consider its potential as one of the best alternative investments. Pieces of art have sold for nearly half a billion dollars, while anyone who’s ever been to an antique or other collectible store knows how valuable certain items can be, from vintage clothes to comic books.
The best part of investing in collectibles is that many of us already have some knowledge about some field of interest that can help us get started finding the perfect investment item. Concerned about the price of investable artworks? There are now numerous funds or other investment vehicles designed to help you own a piece of work without paying the entire cost or taking physical possession.
Private Equity/Venture Capital
For high net-worth individuals, investing can become a challenge as they seek to make the most of their money. One method that has exploded in popularity in recent decades is private equity and venture capital. Either on their own or with the help of a firm, private equity allows investors to fund typically the early stages of a promising company in the hopes that they’ll be richly rewarded when the company or product makes it big.
This isn’t an option for every investor, not only because of the high amount of capital and connections required but also the risk tolerance. While you might make it big, you might also lose it all, and therefore private equity and venture capital should be avoided by all but sophisticated, high net-worth investors.
Everything said above about private equity goes for hedge funds, as well. You’ll need a hefty amount of capital and likely some connections to get involved with a hedge fund. On the one hand, hedge funds can offer innovative investment strategies from the industry’s top minds, offering incredible returns.
On the other hand, they can be high risk with a chance of losses, as well as come with high fees that can eat into your gains. Consider this option carefully if presented with it, but exercise caution.
Dive Into Alternative Investments
Whether you’re looking for a way to explosively grow your wealth or safeguard the assets you already have, alternative investments are a key part of any diversified portfolio. Keep these options in mind, and you may find your investment goals closer than ever!