4 Types of Alternative Investments You Should Know About

When you think of investing, what comes to mind? The 401(k) you have through your work and the cash sitting in your savings account are likely candidates. Most …

Alternative Investments

When you think of investing, what comes to mind? The 401(k) you have through your work and the cash sitting in your savings account are likely candidates.

Most people think of investing as shoveling money into conventional vehicles like cash, stocks, and bonds. While these methods of investing can be successful, they are a bit traditional. They may not produce the high returns you’re looking for to grow your net worth.

If you want to liven up your investing game, you should become familiar with the following four alternative investments.

So, without further ado, here are four types of alternative investments you should get up to speed on as you look for new opportunities.

1) Private Equity

The term “private equity” refers to capital investments made into companies not listed on a public exchange like the NYSE. Private equity includes:

  • Growth capital (helps mature companies restructure themselves)
  • Venture capital (focuses on early-stage business ventures)

However, these are high-risk investments that typically only experienced and qualified investors take on. If you’re new to alternative investments, you probably want to consider something lower-risk.

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2) Commodities

Commodities are real assets. Most often, they are natural resources like natural gas, agricultural products, and precious metals. They are good barriers against inflation because they don’t react to changes in public equity markets.

The value of commodities increases and decreases with supply and demand. When there’s a higher demand for commodities, they’ll cost more, which means investors will earn great profits.

Commodities are some of the most well-established investments in the world. They have been traded for thousands of years, and they aren’t showing signs of going anywhere.

3) Real Estate

You can’t go wrong with real estate as an alternative investment. Real estate is the world’s biggest asset class, so there’s plenty of it to go around.

To be successful as a real investor, you’ll need to learn strong valuation skills and determine when to use certain methods like discounted cash flow and income capitalization.

According to Forbrukslån.no, real estate investing offers additional leverage opportunities through mortgages, and other loan products. This allows investors to purchase properties with lower cash requirements up front, which can amplify gains. Since, as an asset class, the risk of properties dropping significantly in value is small (assuming we don’t enter another bubble situation like 2008), lenders are more than happy to loan money to investors at high loan to value (LTV) ratios.

There are hundreds of different ways to invest in real estate, from passive to very hands on – what’s right for each investor varies, so if make sure to invest some time in figuring out the best strategy for you personally if you go down this road.

4) Collectibles

Collectibles like baseball cars and vintage cars aren’t just for show. They carry some serious monetary value. However, keep the following in mind:

  • You’ll need to purchase and maintain physical items. The hope is that these assets will grow in value over time to invest in collectibles.
  • You’ll need to manage the costs of acquiring your collectibles and store them properly for future sales.
  • It generally helps to have experience and a genuine interest in the objects you’re collecting.

Bottom Line

Some investors might view alternative investments as risky. All investments carry some risk, but alternative methods can actually help you manage risks in terms of your overall portfolio. As always, we recommend talking with an investment advisor before investing any amount of meaningful money.

 

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