Pros and cons of alternatives – how to approach these non-traditional investments
In recent years, alternative investments have become a real sensation for the most competent people. They have long ceased to be limited by large companies and big investors and are available for private investors. So, how to become such “competent individual” in the alternative investment market? Just analyze the following information, which is based on materials of professional consultants whose work results in the successful and reasoned choice of the investment plan for their clients.
Alternative investments – pros and cons
Among the obvious advantages of having a portfolio of alternative investments, you can immediately distinguish the diversity on investing funds, the tax exemptions, as well as the stabilization of the price changes due to the fact, that this line of business is completely independent of the stock market. There is no guarantee a static profit margin, but the access to complex investments, which else recently were not available to private investors, makes this direction more promising.
Talking about risks, you should know that this direction investment is more complex in itself. Your initiative may not be successful due to such reasons as the need to invest in surplus stock, high fees, and commissions, and the instability compared to, for example, the same stocks. The risks are directly proportional to the potential profit, as in any business.
How to succeed in the alternative investment market
In order to make your venture in the alternative environment successful and safe, it is recommended to choose initially marketable investments that, since 2008, have expanded significantly worldwide in as new products and businesses on the market. For example, given the exchange-traded funds detachment from stock market financial products and their similarity to hedge funds, futures, and ventures, they are a quite preferable option. In other words, a part of tangible assets may include financial and tangible assets of the widest range. The use of such assets in forming an investment portfolio can increase its profitability and the level of diversification.
Leading fields of alternative investments
Considering that there is no certain classification of alternative investments, as well as their common definition (for example, non-traditional fields of business and products), we propose a leading fields’ list composed according to the popularity and the volumes actual data:
- Financial assets – already mentioned above: ventures, futures, and hedges, as well as ETFs
- Tangible assets – Arts and antiquities, various rare collections and artifacts; jewels and metals (this type of investments involves an investment in all sorts of precious metals and gems according to the generally recognized classification; the most reliable is metal is gold)
- Real estate (investing in real estate is a fairly stable source of income)
- Investments in natural resources production: oil, gas, wood, coal, etc.
- Securities (securities which circulate on the Alternative Investment Market)
Investing in tangible objects specificity
In favor of the investments in tangible objects, we can provide an example of a very popular area, such as the wine market. Compared to the leading listed investment categories, the market offers an impressive percentage of price stability due to the specificity of the primary product. In recent years, this direction is experiencing a significant growth, not to mention the trend and the prestige of this field.
The basic principle can be described as follows: you purchase a young wine and ensure the required storage conditions. Five years later, its price will increase by 5-10 times depending on the variety. Thus, the average profit per year is about 30%. The same logic is used concerning the rest of the material objects of investments. However, investing in wine is not that easy. Investors should only do business with certified wine merchants for their initial investment to have a return potential. Stick to first-growths if you’re not willing to take risks; this way you are almost sure that your wine cases will increase in value.
Taking all the aforesaid into consideration, we can describe the investment alternatives with following concepts: illiquidity, long-term, negative correlation against other assets, need for a wide analysis and education. If these characteristics do not frighten you, and the positive aspects mentioned in the article are of special interest – use your chance right now!
About the Author:
Denny Averill is the writer to this article. He is a regular contributor at many sites and mainly focuses on business related topics. He also writes for a site http://www.wineinvestment.com/ offering range of leading edge service solutions to the fine wine market.