No matter whether you’re new to investing or you’ve been building your portfolio for years, it’s never a bad time to expand your investment knowledge. In this article, we will be taking a closer look into what alternative investments are and how to go about choosing the best fit for your portfolio.
This topic will be separated into two parts, so without further ado, let’s get started with part one.
What Is an Alternative Investment?
An alternative asset is considered a financial asset that does not fit into any of the “standard” investment categories, which include stocks, bonds, and cash. Typically, alternative investments include categories like hedge funds, venture capital, private equity, commodities, real estate, and physical assets like antiques and art.
Unlike stocks and bonds which fall under heavy regulations, many alternative investments aren’t as regulated by the U.S Securities and Exchange Commission (SEC), making them relatively illiquid (assets that are not easily traded or converted into cash).
As a result, alternative investments have historically been held by institutional investors and very affluent individuals. This doesn’t mean that an average investor can’t benefit from having alternative investments in their portfolio. There are many different options within the alternative investing space.
What Are Some of the Most Popular Alternative Investments?
In the past two years, alternative investments such as cryptocurrencies and NFTs have been gaining traction and getting a lot of attention in the media. Since they’ve been so widely discussed, we’re going to focus on some other (potentially less well-known) alternative investment opportunities:
- REITs or Real Estate Investments Trusts
- Commodities and commodity funds
- Crowdfunding
- Physical assets like art, wine, and rare collections
- Private placements
- Hedge funds
- Fund of funds (multi-manager investment)
All of these alternative investment options can be complementary to your traditional investment strategy and can strengthen your portfolio. That being said, not all assets are made equal, so it’s vital that you take the time to find investments that work within your strategy and support your long-term financial goals.
How to Know if an Alternative Investment Is Right for You
Your investment portfolio should be diversified, which implies that it must consist of different stocks, bonds, and assets. Alternative investments are a big part of this diversification effort.
Just like with traditional investments, there is no foolproof or 100% certain way to know which alternative investments to make. To make the best decisions possible regarding alternative assets, be sure to do the following three things:
- Do in-depth research of different alternative investment types.
- Assess the potential risk/return ratio associated with each of them.
- Determine how much money you want to invest and what timeline you’re working with.
After completing these steps, you will be able to choose an alternative investment that matches well with the rest of your portfolio and will hopefully bring you the wanted benefits.
Be sure to check out part two of this topic to get a more in-depth overview of some of the most popular alternative investments types.
Please feel free to reach out to me on this or any of your investment needs or questions. I may not always have the answers at my fingertips, but I promise I will get them for you. Michael Torrence
Calendly link https://calendly.com/mt-awf/intro Work: 435.658.1934 Contact: 330.284.3211
Michael Torrence – Investment Advisor Representative: Michael was born and raised in Ohio and attended The Ohio State University. After College, he was commissioned as a 2ndLt in the United States Marine Corps. He attended his initial training in Quantico, Virginia, then graduated at the top of his Primary Aviator Class and was selected for the Strike (Jet) Platform.
Founded in 2010, our services include boutique hedge funds, separately managed accounts, financial planning, estate & trust services, private placements, and in-house concierge services for high net worth individuals, families, and businesses.
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