You already know about the conventional investment types like stocks and bonds. It is time to focus your attention on alternative investments and its potential. The alternative investment includes private equity, real estate, commodities, hedge funds and the like. This type of investment gained popularity in recent years as investors looked for ways to minimise their exposure to the volatility of stocks and bonds.
Alternative investments are compelling. Here are the things that you should know about alternative investment:
What is the nature of alternative investment?
Alternative investments have high minimum investments compared to Exchange Traded Funds (ETF) and mutual funds. In most cases, alternative investments have high fee structures. You should also know that there are fewer chances of publishing performance data. With this, alternative investment is vulnerable to fraud and scams because of their unregulated nature. Therefore, it is critical for investors to conduct due diligence when looking for potential alternative investment.
What are some examples of alternative investments?
An alternative investment is extensive – some you didn’t encounter yet. It is important to know the list so you will not be limited if you are thinking about investing. Examples include:
1. Real estate: real estate is an alternative investment from real estate development corporations, owned property, limited partnerships and many derivations. Real estate refers to properties made up of land and buildings.
2. Limited partnerships: for this type of investment, the investor can own and even operate everything from theme parks to oil pipelines and rigs.
3. Shipping containers: this type of alternative investment involves worldwide shipping. As an investor, you need to purchase a container and have an external company manage it like what Davenport Laroche does. The agency will connect the shipping containers to merchants around the world to lease their containers.
4. Commodities investment: this alternative investment involves precious metals (like gold, diamond, silver, platinum, palladium, copper, aluminum, nickel and cobalt), crude oil, ethanol, natural gas, corn, wheat, cocoa, coffee, oats, cattle and many more.
5. Intellectual property: this investment includes copyrights, patents, trademarks and song rights.
6. Art and collectibles: the investor can freely invest in art and other collectibles of value like vintage cars and antique pieces.
7. Wine: one of the most popular types of alternative investment is wine. Many investors consider this to manage their risk of experiencing periods of market volatility. Wine investing is sophisticated but as an investor, you need to have basic knowledge of the wine industry.
8. Coins: if you are a coin collector and want to establish it as an alternative investment, you can do so. Just choose coins that have numismatic value.
Other examples include farmland, timberland, mineral rights, equipment leasing, private equity, venture capital and many more.
Why investors seek out this type of investment?
There are many reasons why an investor is interested in this type of investment but the most common one is that the cash generated from the alternative investment is subject to favorable tax treatment. This means that cash generated from traditional investments have stricter tax treatment. Moreover, alternative investment appears to be cheaper, which attracts a more long-term investor.
Whatever you choose, it is important that you diversify your portfolio to limit the chances of volatility.