Alternative investments: what are they and how do you get started?

This guide outlines alternative investments, detailing what they are and how to develop an alternative investment strategy.

With all of the talk about the economy because of the pandemic, you’ve likely been paying closer attention to your personal finances as of late. After all, it’s only natural to want to know more about your future when so much about your present is uncertain and confusing. Up until this point, you may not have paid much attention to what sorts of things you invest in aside from your employer-provided 401k. However, making savvy investment decisions is critical if you want to set up enough of a nest egg to live off of later in life.

Alternative investments strategies are one area that many people don’t always think about, even though they have the potential to provide an excellent source of passive income.  If you’re wondering to yourself, “What are alternative investments, anyway?” read on. The following overview should give you all the information you need to get started investing in alternative options to traditional investments. You can also check an interesting website on alternative investments here.

What are alternative investments?

Put in its simplest terms, alternative investment options are an investment in something that’s not the usual asset class your 401k or other brokerage accounts are built on. This means that instead of investing in an asset class like stocks, bonds, or cash, you’re investing in something else which is understood to have monetary value but isn’t publicly traded in the same way as traditional investments.

Because these assets aren’t traded publicly, there’s a bit less transparency surrounding the value and liquidity of an alternative asset than there is a traditional financial asset. That being said, you shouldn’t let that turn you off from cashing in, as there’s plenty of money to be made in alt investing, even if it might take you a longer time to unload your investment when you’re ready to sell.

Consider your alternative investments strategy

Just like any other investment strategy, it’s important to think about your goals when you begin to dabble in alternative investments. Of course, one goal you likely have for branching out from traditional public markets is the decision to really diversify your portfolio. Beyond that, however, it’s crucial that you consider whether you’re looking to add income, growth, or balance to your portfolio. Passive income streams are easy to come by in the world of alternative investments, but that doesn’t mean that it’s not possible to find growth or balance options in the alternative sector, too. When you know what you’re looking to get out of an alternative asset, it helps focus your attention on the categories that can help you accomplish that goal.

Know about some of the most common alternative investments

Unlike traditional markets, there’s a broad range of options to consider when you’re getting into alternative investing. Some of what you choose to invest in will come down to personal taste, while other assets make more sense depending on your strategy. These are some of the most common alternative assets people choose to buy.

• Real estate is a common option for long-term growth or even balance if you plan to rent the home while it appreciates.
• Art and collectibles are one of the most popular growth assets available but can fluctuate in value dramatically due to buyer demand on the secondary market.
• Venture capitalis good for investors looking for a long option, you can also help a smaller business get on its feet by choosing this option.
• Franchises that you pay to have someone else run can be a quick cash-based investment option for those looking to make an immediate return.

What are the advantages for your portfolio?

The advantages of alternative investments for your portfolio are: portfolio diversification, non-correlation with the traditional market, active participation in the investment choice, diversity of sectors, protection against inflation, among others.

Portfolio diversification

You already know that diversifying your investment portfolio is essential. However, the great difference in applying and understanding what alternative investments are – and which you may not know – is that such opportunities are inserted in the real economy segment, and are backed by real assets.

This is one of the great benefits of this type of investment, as alternatives bring security to your portfolio, considering that the profitability of these projects is much higher than the alpha generated by financial assets, common to the traditional market. So, that aspect brings us to the next benefit:

Non-correlation with the traditional market

The non-correlation with financial assets and investments inherent in the traditional market is one of the main benefits that alternative investments offer to your portfolio. This gives you greater freedom and security to continue investing, even in times of economic and political crisis.

Therefore, understanding what alternative investments are is to understand one of the main advantages they present: to mitigate risks, regardless of the different movements, or rather, the volatility of traditional financial markets.

Inflation protection

One thing leads to another. Considering that these investments, for the most part, are linked to a project with an established cash flow (when not, it is linked to a specific economic activity) it is clear that most opportunities have the ability to protect against inflation.

An example of this are projects related to energy generation or leasing of commercial properties. Thus, this becomes the most efficient and secure way to guarantee a truly efficient diversification for your portfolio.

Active participation in the choice of investment

Unlike traditional investments, alternative investments provide greater participation power to their investors. After all, when investing in the real economy, through products backed by real assets, you can choose exactly which project you want to apply.

Diversity of sectors

This is one of the pillars for successful investors. In fact, presenting a portfolio with investments in different segments is what contributes to its diversification.
However, the great benefit of understanding what alternative investments are and allocating them in your portfolio is that they are backed by real assets, there is a much more diverse range of corporate sectors in which you can invest, such as in real estate , commercial, agribusiness, among others.

Conclusion

As you can see, each of the options listed above has its own pros and cons and fits into a specific strategy. Make sure to do your due diligence when researching your options and you might be surprised by how much your portfolio can earn investing in alternative assets.