It goes without saying that investing your capital is the smartest way to generate income passively, and investors are constantly on the lookout for exciting investment opportunities with good profit potential.
When it comes to investing, many people tend to think of it as traditional investment, such as buying stocks, mutual funds, bonds, or cash. However, this is only part of the entire picture. There is a category beyond traditional investments, called alternative investments, which are a hidden gem in the financial market. It’s exciting, versatile, and, above all, offers a higher potential for good returns!
If you want to avoid trades through a broker, alternative investment opportunities are the way to go. You can make quite a modest profit through these if you know what you’re doing. The best part is that you’re not trapped in choosing bonds, mutual funds, or publicly traded stocks. There are so many other opportunities – the world is your oyster!
What Are Alternative Investments?
Alternative investments are asset classes that are not stocks, cash, or bonds. They differ from the traditional investment types as they are not sold or changed into cash. Alternative investments cover an extensive array of investments, each with its own uniqueness in terms of structure and accessibility. However, they all have some similar key features. These include the following:
- They are illiquid, so they cannot be sold or converted to cash quickly
- They are more lightly regulated by the US Securities and Exchange Commission when compared to traditional investments
- They do not always move in the same direction as other assets when the market conditions change
If you’re considering alternative places to put your money, you have to be careful not to get fooled by get-rich-quick schemes and other scams. It is essential to make sure that you choose legitimate investment vehicles.
In this article, we look at some of the best alternative investment options to consider.
Real Estate
Real estate is a very vast category, and its characteristics are somewhat similar to bonds in that the property owners get a current cash flow from tenants who pay rent. The goal is to enhance the asset’s value over a long period of time, known as capital appreciation. There are so many types of real estate assets. These include farmland, land, timberland, and so on.
However, the true challenge lies in valuation. The methods include discounted cash flow, income capitalization, and comparable sales. To make your mark as a successful real estate investor, you must have strong valuation skills and thorough knowledge about how and when to use your methods.
Commodities
This category usually covers natural resources such as natural gas, oil, agricultural products, and industrial and precious metals. Since they are not sensitive to public equity markets, they are considered a hedge against inflation. Moreover, the value of these commodities will fluctuate depending on supply and demand. When there is a higher demand, the commodities will deliver investor profit.
Collectibles
Collectibles are those items whose value appreciates over time, such as rare fine art, stamps, vintage cars, rare wins, and ancient coins. When you invest in collectibles, you must maintain them with the hope of their value appreciating with time. While this is definitely a more exciting type of investment, it should be understood that it’s also risky since the cost of acquisition is high, there is a lack of dividends or income until the collectible is sold, and it could be damaged if not taken care of properly – in which case, it would lose its value, and you, your investment. If you wish to invest in collectibles, you have to be an expert in the field with experience and knowledge about the world of rare items.
Gold
One of the most sought-after asset classes, gold, is undeniably a strong competitor to stocks. It’s perceived as a tangible inflation hedge and a long-term store of value. Moreover, it’s an excellent diversifier and can serve as a great rescue asset during tough times. The gold investment includes:
- Buying and holding physical gold.
- Gold exchange-traded funds.
- Investing indirectly through gold mining stocks and gold accounts.
If you’re relatively new to gold investment, it’s essential to understand the factors that dictate gold prices.
Peer-to-Peer Lending
Known as P2P lending, this is where loans are offered for personal use, a business, or anything else. When you join a pool of investors who loan money to others, the loan can be funded by you when the borrower qualifies. In this type of debt lending, there is no bank involved. Instead, the money is usually pooled with other investors; combined, you loan the person requesting funds. You will get a fixed repayment every month that also includes the interest.
However, P2P lending comes with plenty of risks. Since you’re loaning money to people who haven’t been able to get a bank loan or cannot go through traditional loan outlets, there is a greater probability of default. Still, if you’re careful about checking the borrower’s credit rating and considering other parameters, you can make a better-informed choice of whether you want to fund.
Final Thoughts
There is no doubt that alternative investments are a great way to help diversify your portfolio and lessen the overall risk with the potential for greater returns.
Since alternative investments are rapidly making a significant impact in the investment landscape, there is a greater choice for different types of investors. This also makes it all the more important to be well-versed in this particular subject, especially if you are an aspiring young investment professional looking to accelerate your career.
If you are considering alternative investments, it’s imperative that you gather as much data as you can and consult with investment and field experts too.
