The stock market is famous for its volatility, so it’s not too surprising that risk-averse investors are keen to find safer ways to invest money. Traditional stocks and shares are vulnerable to fluctuations in the market, and this can cause major losses that can wreak havoc in any investor’s portfolio. It’s no wonder, then, that alternative investments are becoming more popular as those who are investing for the first time, as well as those who are seasoned investors, look for options that will give them a reliable and secure source of ongoing income without so many risks.
So, what are alternative investments? It’s a term that is used to describe any type of investment outside the standard three asset classes of cash, bonds, and stocks. While these more unusual investment options have a role to play in any investor’s portfolio, it’s important to be aware that these investments can’t take over from traditional assets. As an investor, you shouldn’t sell your stocks, or take your cash out of your savings account and put it all into untraditional options. In fact, the majority of financial experts believe alternative investments can be put to best use when it comes to portfolio diversification. Rather than putting all your money into stocks, it makes more sense to put some into stocks, some into bonds, and some into alternative investments such as fine art, wine, private equity, or hedge funds. This is one of the best ways to protect your portfolio.
Alternative investments have long been popular with institutional investors and high net-worth individuals, and this is because many of them require a bigger initial investment when compared to bonds and stocks. Also, in many cases, alternative investments have less liquidity than more traditional ones, so they are harder to cash in easily and quickly. Nevertheless, don’t be put off just yet. There are several benefits to making alternative investments.
Investing In Fine Art
Historically, price fluctuations within the fine art market do not reflect the standard fluctuations reflected in the traditional stock market. On the other hand, though, the art market has shifts of its own that may make investing more risky. Although buying sculptures and paintings in top auction houses and galleries will cost you a minimum of $10,000, it’s possible to enter this market with lower amounts of around $500 – $1,000 if you’re willing to gamble on undiscovered, smaller artists, or cheaper media such as lithography or photography.
Investing In Wine
You may never have considered investing in wine, but in fact, it’s possible to make steady returns of 6-15% each year in the long-term. The prices of some vintages will fluctuate year-to-year, however, the price of wine from the most popular vintages and vineyards will usually eventually increase when the supply becomes more scarce. On the downside, though, since wine collectors and connoisseurs are picky, you’ll need to do your research to choose vintages that represent a good investment, and you’ll need to invest in a large quantity to ensure sizeable returns.
Investing In Commodities
Livestock, crops, precious metals, and fossil fuels are all commodities. Their marketplace is extremely volatile since unpredictable world events and natural disasters can have direct impacts on prices. If there’s a drought in one year, the price of a certain crop may soar, but then the following year there may be a surplus that causes that commodity’s price to drop dramatically. Since commodities are unpredictable, they are better long-term investments than short-term ones. The safest way to benefit from commodities’ rising prices is to purchase ETFs. These mutual funds buy several commodities instead of just focusing on a single one. This eliminates a little of the uncertainty involved in choosing which commodity could fall or rise at any given time.
Investing In Real Estate
Real estate has long been an extremely popular form of alternative investment. Yet, even this long-standing option is subject to market fluctuations. The potential of crashes in the real estate market makes some investors nervous and wary about making investments in property. However, purchasing rental property usually provides a reliable and steady income as long as the right tenants can be found. It’s important, though, to remember other expenses such as general upkeep and property taxes that may limit profits together with major investments of effort and time.
Choosing The Right Alternative Investments
If you’re keen to make alternative investments, the key is to add them to an expanding portfolio of options. If you choose the right alternative investment for you, whether than be in wine, fine art, rental property or commodities, you should ensure that it forms part of a larger series of investments to protect you from potential risks. This way, you can enjoy greater financial security as well as maximum money-making potential.
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