What Are Alternative Investments?
You know what they say, don’t put all your eggs in one basket. While stocks and bonds might make up the bulk of your portfolio, adding in some alternative investments can spice things up. We’re talking real estate, private equity, hedge funds, commodities – the works. These babies march to the beat of their own drum, which means they don’t move in lockstep with the stock market. That makes them handy diversifiers. But tread carefully, some of these alternatives come with higher fees, lower liquidity, and higher risk. We’ll walk you through the pros and cons of the best alternative investment strategies so you can decide if it’s time to add a little flavor to your portfolio.
Top 5 Alternative Investments to Consider
Alternative investments – sometimes called “alt investing” – refers to assets outside the traditional categories of stocks, bonds and cash. They can add diversification and juice up returns in your portfolio.
Some common alternatives worth considering:
– Real estate – Investing in rental properties, REITs or real estate funds can provide income and appreciation while acting as an inflation hedge.
– Commodities – Gold, silver, oil and other commodities can help offset stock market volatility. Access them via ETFs or commodity funds.
– Private equity – Investing in private companies can offer high growth potential before they go public. But it requires high minimums and comes with higher risk.
– Hedge funds – These pool money to trade assets actively with strategies like shorting, leverage and derivatives. Performance may be volatile.
– Cryptocurrencies – Digital assets like Bitcoin provide an uncorrelated asset class but are highly speculative in nature. Invest carefully.
The key is allocating only what you can afford to lose – say 5-10% of your portfolio – to these non-traditional assets. With the right balance, alternatives can provide outsized returns while decreasing overall risk.
How to Allocate Alternative Investments in Your Portfolio
Looking to add some spice to your portfolio beyond just stocks and bonds? Alternative investments can provide diversification, hedge against inflation, and boost returns – when done right. Here are 5 to consider:
– **Real estate** – Residential or commercial real estate can provide ongoing income and appreciation over time. You can invest directly or through REITs. Just know it comes with hands-on management.
– **Hedge funds** – These aim to generate returns in any market by using sophisticated strategies. Can provide diversification but require high minimums and charge hefty fees.
– **Private equity** – Investing in private companies can mean high growth potential. But it requires major capital and comes with higher risk as private companies lack transparency.
– **Commodities** – Gold, oil, corn – investing in physical commodities can hedge against inflation. Understand cyclical pricing and storage costs. ETFs provide exposure without direct ownership.
– **Collectibles** – Art, wine, coins, antiques – fun but requires expertise. Focus on quality pieces with authenticated provenance for higher returns on investment.
The key is balancing risks and costs with your goals. Speak to a financial advisor to see if any alternative investments may be a fit for you. A little can go a long way in diversifying your portfolio!