Alternative investments: A chance for you investors to level up their diversification strategy One of the most common strategies that can assist whether one is a novice or knowledgeable investor is how to use alternative investments to improve the level of diversification in the old portfolio.
Once the discussion shifts towards the commodities in whatever diversification an investor may be looking at the provided ones stocks and bonds come out as the first asset classes that an individual can really think about within the figures mentioned. Such primary assets are included in most of the portfolios, being referred to as the ‘basics’. However, there are times when such markets go through normal periods; high levels of volatility that may even affect such assets as equities that most people consider for investing. It is these risks that caused more and more investors to look for a new and different way of investing that goes outside of the traditional asset classes. Within this category are such forms of investments as investment companies of private equity, hedge funds, real estate, fine art, wine, and other forms of non-tradelike investments.
Thus, most of such alternative assets are said to be less dependent on the stock market and the bond market so as to help alleviate the instability of the portfolio especially when depression of these markets is experienced.
Normal vs. Alternative and best way of investment
In addition to also assisting in minimizing the risk of concentration of assets in the same asset class, there are circumstances when engaging in alternative investments is more advantageous than engaging in traditional investments. It is to be known that there are also expected returns on investment which are mostly based upon the investment in question as well as the investment environment among other factors.
In the following these alternative investments are compared to the performance of certain classical investments for five-year period, from 2017 to 2022. The information, provided by Brent Weiss, due to his capacity as co-founder of Facet Wealth and also from Bloomberg Terminal, covers duration of investments made from December 31, 2017 to December 30, 2022 inclusive.
| Investment Type | Average Annual Return |
| S&P 500 (stock market index) | 9.42% |
| U.S. Treasury Bonds | -0.10% |
| Real Estate | 3.74% |
| Gold | 8.63% |
| Commodities (wheat, nickel, crude oil) | 6.4% |
| Hedge Funds | 2.83% |
| Crypto | -10.48% |
Advantages of Alternative Investments
If the term alternative investment is considered, the slight diversity in the way of interpreting this concept occurs with its application. In this section a number of examples can be given.
- Hedge Funds: These are investment funds consis ting of accumulated cash from high net worth individuals or institutions known as limited partners. Hedge fund managers normally prefer to undertake leveraged purchases which nearly entails borrowing extra funds with the express purpose of acquiring more stocks especially when the prices of stocks are on the uptrend. Leverage makes hedge funds to be rather volatile.
- Equity Crowdfunding: This is a method of raising money by a company that does not require borrowing. This includes the use of websites like AngelList or Fundable where people invest money in exchange for ownership in the company.
- Private Credit Investments: As the name makes evident, it ends up purchasing the debt, which a company has, but is not publicly traded; usually made through a private debt fund. This may include but is not limited to provision of the capital as well and focusing on certain categories of loans, for instance, conditional loans or high risk or business assets.
- Commodities: This refers to any essential mineral substance or product mined from the soil or agricultural activities like…. Mostly coffee, sugar, wheat, gasoline, crude oil, copper, gold or to name metals. It has to be noted that commodities do include everything which is or may not be related to food. Commodities are based on an agreement to buy the commodity at a specified price at a future time.
- Real Estate: As the name describes urban real estate acquisitions for self-occupied or buy-to-let purposes. Innovations now offer the same possibilities with Franchise rental properties, farmland, and REITs.
- Collectibles: It includes collectibles and tangible goods like paintings, wines and stamps. Such kind of investments is peculiar of high risk and related to special assets. In light of what you’re considering forming a collection, perhaps the best way to purchase these items would be through sale by action or websites which focus on that asset.
- Cryptocurrency: For instance, it is an asset purchased and sold using the available crypto exchanges. After all the challenges that money bitcoin strategy must have faced in the crypto trading owing to the 2022 cryptocurrency trends, it is right to say that it has quite performed well in the long term. So recent 5 years the price of bitcoin increased only by 3%. In contrast, gold is a physical commodity which necessitates for storage, this is not the case with Bitcoin because it is a digital print of money.
Steps on How to Buy Alternative Investments
Alternative investments are different from mainstream investments familiar to the writers for example money oe stocks in one important aspect thaa they are not easily available in mainstream markets at any given time. In case you are interested in these assets then you will likely have to choose to purchase them from the private institutional investors or fund managers instead.
Nonetheless, there are still some managed alternative investment funds that can be availed through online brokers or other means. A good example of this is purchasing shares of an exchange traded fund focused on gold equities or purchasing an alternative mutual fund through a broker. One can even purchase these currencies online via various crypto exchanges.
