When most individuals think about investing, they often consider traditional investments, such as stocks, cash, and bonds. While the stock market has always been a great way to increase wealth, it's not the only way to invest. There's another aspect to investing apart from traditional investments, referred to as alternative investments.Â
They are basically asset classes that are not bonds, stocks, or cash. These types of investments vary from traditional investments because they aren't converted into money or sold easily. In this article, we'll be reviewing seven different alternative investment types.
Real Estate
Real estate can serve as an alternative investment option when the property is only an income generator. While purchasing property isn't cheap, investing smartly in real estate will provide reliable streams of cash flow. However, as with several real assets, real estate valuation can become a challenge. Real estate valuation approaches include income capitalization, cost-based approach, and comparison approach, with each one having both shortcomings and benefits. To successfully invest in real estate, developing great valuation expertise and understanding how and when to use each method is critical.
Private Equity
Private equity is a wide alternative investment option that encompasses capital investments made into private firms or those not registered on a public exchange like the New York Stock Exchange. An essential aspect of private equity is the relationship and communication between the firm receiving capital and the investing company. Besides capital, private equity companies provide benefits such as industry expertise, talent-acquiring assistance, and guidance to founders.
Commodities
Commodities include agricultural products like corn and wheat, natural gas, and precious metals like gold. Commodities are generally considered a safeguard against inflation because they are unaffected by the changes in the stock market. The worth of commodities falls and rises with demand and supply.
Cryptocurrency
Cryptocurrency is a non-centralized, digital currency facilitated by blockchain technology. Buying cryptocurrency is straightforward, but investing in this growing investment option is high-risk. The price volatility of the crypto market is quite high, with so many different emerging cryptocurrencies out there.
However, there are a few cryptocurrencies you can trust, such as Bitcoin, Ethereum, Dogecoin, Ripple, BNB, and XRP. In fact, recent Shiba Inu price have also been somewhat favorable. Countries worldwide are beginning to grapple with cryptocurrencies' emergence and establishing regulations that will shape the future cryptocurrency landscape.
Collectibles
Collectibles encompass a variety of items, such as:
- Vintage cars
- Rare wines
- Stamps
- Coins
- Baseball cards
- Mint-condition toys
- Fine art
To Invest in collectibles, you have to buy and maintain certain items with the belief that they will appreciate with time. While these investments may seem more interesting and fun compared to others, they can also be quite high-risk due to their high costs of purchase, lack of dividends, and possible depreciation of the assets if they're not properly cared for. The primary skill required in this alternative investment option is experience.
Peer-to-peer Lending
Peer-to-peer lending (P2P lending) is a somewhat new phenomenon. P2P services online offer loans for startups and personal use. There are various P2P lending firms to pick from, including Prosper and LendingClub. In P2P lending, there are no banks involved. Your money is basically pooled with that of other investors, and collectively you make and provide a loan to the person requesting funds. The major risk with this alternative investment option is that you loan to random individuals who could default on their repayment.
To become a successful investor, you must have a diverse investment portfolio. You have to consider a variety of investment options and decide on where your finances will grow best.
Aidan has been writing about personal finance for over 6 years. Prior to this, he worked as a Corporate Finance Analyst where he specialized in Due Diligence, Company Valuations and more. He is a CFA charterholder.
