Should You Consider Alternative Investments?

 There’s no doubt that the coronavirus caused a seismic shock to the world’s financial markets, with the stock markets experiencing several peaks and troughs through 2020 and the first half of this year.

Even fixed-income bonds saw their value decline over the course of the last 18 months or so, creating a rising demand for so-called “alternative investments” across a wide range of asset classes.

But what are the most common types of alternative assets, and which options are right for you? Let’s find out!

1. Private Equity

We’ll start with private equity, which is a relatively diverse and broad category that refers to a capital investment made into privately listed commercial entities.

Similarly, it may include businesses that aren’t currently listed on a public exchange like the FTSE 100 or the New York Stock Exchange, while there are several subsets included within this category.

Venture capital focuses on startup, small cap and early stage ventures, for example, while growth capital investments enables more mature companies to expand and restructure over time.

Often, the viability of this investment vehicle is determined by the relationship between the investor firm and the recipient of capital, while it’s important to select a subset that suits your risk profile and existing capital holdings.

1. Real Estate

Real estate represents a long-term and tangible investment option, and one that can be leveraged in numerous ways in the current marketplace.

From a broader perspective, there are multiple assets that may be included within this investment subset, including land, farmland and even intellectual property such as artwork.

This creates a diverse range of investment options, with real estate arguably serving as one of the most lucrative and generative entities within this subset.

Not only is real estate one of the largest alternative investments by the measure of value, but it’s also similar to fixed-income products like bonds. This is because property owners can leverage their assets to secure currency cash flow in the form of rental yields, rather than simply buying homes and preparing them for resale.

1. Commodities

Commodities remain the most popular and well-known type of alternative investment, and one that’s often leveraged by traders when they receive a free trading bonus as part of their new account.

Commodities are certainly a diverse and accessible asset class, which includes options such as natural resources (like gas, coal and oil), precious metals, iron ore and agricultural produce.

Commodities can either be held as tangible assets or as derivatives, while they’re widely utilised by experienced investors as a viable hedge against inflation. This is because they’re not that sensitive to public equity markets, making them a key component of any truly diversified portfolio.

However, commodities are slightly volatile and at the mercy of the basic principles of supply and demand, leading to higher potential profits and losses depending on how the market in question performs.