When you think about investment, the first options that come to mind are stocks, bonds and mutual funds. These three are what one could call the traditional investment options, that are widely opted for, besides gold investment. However, there are a wide range of other investment options which one could opt for besides these. In this WealthHow article, you will be introduced to other alternative investments types, that promise high returns and help in spreading out your overall investment risk by diversification in the portfolio.
What are Alternative Investments?
Any monetary investment is an opportunity you grant your wealth to grow in value. What could be called mainstream investment options are stocks, bonds, mutual funds and cash investments. Securities like stocks and bonds and conventional investments like the ones made in precious metals like gold are the most popular investment options, after low risk alternatives like IRAs, 401(k) plans and treasury bonds.
However, there are a range of investments beyond these conventional ones that most don't consider. These are high risk and high return investments with low liquidity levels that require a substantial amount of study and deep analysis. These investments include financial derivatives, hedge funds, managed futures, metals and real estate. Let me briefly introduce you to these investment options in the following lines.
Alternative Investment Options
Among alternative investments, there are the old and conventional options like real estate and metals and new ones like hedge funds, derivatives and futures. Let me explain each investment type in a nutshell, in the rest of the article.
Real estate is perhaps one of the oldest alternative investment options with substantial growth potential. Individuals and institutions with a substantial corpus can invest in commercial and rental properties in USA and the worldwide market. As opposed to conventional investment options like stocks and bonds, liquidation of investment in this asset class takes time.
Your invested money stays locked in until prices for the same property increase enough for you to sell and make a profit. However in booming real estate markets, a high amount of profit can be made, with the property value doubling and tripling in a few years. Another way of making money is through renting of property to create a source of steady income.
Investing in precious metals like gold and silver can help you reap substantial benefits. In fact, investing in gold and silver is considered to be the best investment during recession as the prices of these metals have been known to always increase with time. In fact, gold and silver prices are at an all time high currently.
Accessible only to high net worth individuals, hedge funds are alternative investment options that guarantee high returns by using diverse investment strategies to gain profit in domestic as well as international markets. These are private investment partnerships with a limited clientele and professional management that invest in a wide range of securities, metals, derivatives and commodities worldwide to create profits for their investors, despite market fluctuations. Current valuation of the size of hedge fund assets worldwide is more than 1.9 trillion dollars.
Private Equity Funds
Private equity firms, high net worth individuals, large financial institutions and institutional investors come together to create private equity funds by pooling in their combined wealth for a fixed amount of time in the form of collective investment scheme.
The private equity firm makes the investment decisions and the investor's money stays locked in for a fixed period of time. The risks associated are high compared to other conventional investments while also offering high returns. These investments aren't generally correlated with the value of conventional investments and are therefore insulated from associated risks.
Perhaps the most complex of investment options, financial derivatives are instruments whose inherent value is a function of other financial instruments like commodities, market indices and interest rates. Investing in financial derivatives like options, futures and swaps is a highly sophisticated form of gambling. A derivative is a contract with value dependent on the underlying security or asset value. The level of study required and the risk involved in derivatives make them the most exotic investment options with the highest degree of risk.
Art & Antiques
A very specialized alternative investment option is putting your money into art and antiques. World over, rare masterpieces of art including paintings and antiques are sold through auctions for a fortune. Some wealthy individuals buy them as collectors while some businesses buy and sell them as pure investments with potential for growth in value. For high net worth individuals, investing in antiques and art is a viable investment option.
Most of these investments like futures can be difficult to analyze for the average investor, due to their complex nature. As discussed before, the fact that the risk involved in some of these investments is substantially high and their liquidity level is low, makes them accessible options only for high net worth individuals and institutional investors who have the financial buffer to withstand the risks involved.
All the same, it is good to be well informed about the whole range of investment options as a beginner investor. From a purely student point of view, investment options like derivatives, futures, hedge funds and private equity funds are interesting options to analyze. Hope this WealthHow article has kindled your curiosity to delve further into analyzing these investment options.