Alternative – Investment Strategy

When you think of alternative investments, you could be thinking of a crowdfunded initiative to support an Amy Shark national tour, but they’re actually a far more legitimate investment class.

What are alternative investment?

Alternative investments, simply put, are any investment that does not fall into the classic categories of stocks, bonds, or cash, and is not priced or evaluated in a way that is directly connected to any of these. Alternative investments, might invest in one of these classic categories but in a different way, such as arbitrage, which is a fancy name for profiting from a price differential between two markets for the same security. 

Certainly, you can invest in a variety of things that aren’t stocks, bonds, or cash. Alternative investments include commodities, hedge funds, and private equity. Other items include art, wine, and antiquities. Alternative investments include stuffed animals, Pokémon trading cards, and a strand of Dolly Parton’s hair. 

Not all investments are created equal, and the huge universe of alternative investments gives virtually infinite chances for losing a fortune, so act with caution when investing.

Key Features

Benefits of alternative investments

There are a number of reasons why alternative investments might be appealing, but the absolutely best one is diversification. One of the most important tenets of smart investing is that not only should you not put all your eggs in one basket, you should deposit those eggs in pretty much as many baskets as you can get your hands on.

Why? Diversification is about reducing risk and smoothing returns. During those inevitable periods when some of your investments are performing poorly you’ll want other investments to make up some of those losses. Bond investments generally do well when stocks are down. But because alternative investments’ performance generally doesn’t correlate with other investment categories, in them you’ll find an investment that has a chance of performing well in conditions that have absolutely nothing to do with the performance of stocks and bonds.

Downside of alternative investments

Though these certainly don’t pertain to all alternative investments or strategies, the main drawbacks often cited are:

– Illiquidity: They can be tougher to sell than many other investment types.

– Volatility: Their prices may rise and fall more dramatically more than other investments.

– Barriers to entry: Some alternative investments just cost too much for most investors. Want to start investing in Van Goghs? Great! Got $81 million lying around?

 

How do I invest in alternative investments? 

As the name suggests, such investments depart from or challenge traditional norms. They often come high-risk and so you should probably only ever invest any money you can absolutely, positively afford to lose.

If you need help choosing the right investments, get financial advice. A moneylab financial planner will help you set your financial goals, understand your risk tolerance and find the right investments for you. They are the experts in finding the best type of investment to suit you and your needs. If you have an investment idea or are looking to boost your wealth, contact us, and we’ll develop the most effective investment plan catered to you.

 

Caution!

Investing without knowledge and understanding is just speculation and relies on luck. We recommend speaking to a professional about your financial goals and needs to ensure you make educated and composed decisions. Contact us today to speak to a financial advisor, who will help bolster your investment strategy and returns. 

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