In a few years’ time, traditional investments will still be around but judge by the market trends as they stand today, alternative investments will be on the rise, and for a good reason. But what exactly are alternative investments, and which ones promise the highest return with minimal risk of loss?
By definition, alternative investments are financial ventures which don’t involve bonds, stocks, and cash, and as such allow investors to diversify their portfolios and achieve high yields.
Still, newbies to the alternative investment game should watch their step as these ventures can be extremely volatile, illiquid, and they also entail long lock-up periods, which is why they can end in massive losses rather than fast and easy profits.
If you’re still eager to expand your portfolio with the help of alternative investments but aren’t sure which of these ventures promise a high and safe return, here are four of the most common non-mainstream financial ventures you can try for peak yield and minimal loss risk in tow.
1. Fine art
If you don’t mind waiting to cash in on your alternative investment, fine art is probably the best option. Investments in rare artwork will add value and variety to your portfolio and at the same time allow you to avoid excessive market fluctuations and loss risks.
As a rule, oscillations in the fine art market are significantly lower compared to stocks and bonds, which makes this type of alternative venture perfect for young and up-and-coming investors.
If you want to get high yield fast, though, you should look into other alternative investment options: artwork prices change at a relatively slow rate, which means you might have to put the sale off a little if you’re looking to get the biggest return for your buck.
2. Real estate
Real estate investments are another area which holds huge profit potential, and the appeal of this type of alternative financial ventures has been on a steady rise among investors worldwide for a few years now.
High yield and market stability make real estate trading one of the safest alternative investments you can add to your portfolio whether you’re a seasoned investor or a greenhorn in the game.
Even if you’re not an experienced realtor, you can still earn a decent profit through fix-and-flips or resale of residential or commercial property in hot locations. Still, be sure to think through the investment and pick your estates carefully: real estate investments can bring in millions, but not every plot of land is truly worth its weight in cash in the long run.
3. Precious metals
Even though money has been the customary payment instrument for a couple of centuries now, gold, silver, and precious stones still have an irresistible appeal for investors.
One of the popular alternative investments that promise high yield and low volatility, gold can add credibility and diversity to your investment portfolio, but it shouldn’t account for 3% of your ventures because it doesn’t promise fast profits.
In addition to that, silver and gold are a synonym for luxury and status in the finance world, which is another reason to buy precious metals and list the venture in your portfolio even if you’re not looking to use the alternative investment to raise wealth by buckets over night.
4. Hedge funds
The most encompassing type of alternative investments, hedge funds represent money pooled together by multiple investors which can then be invested in other non-traditional commodities or assets.
Unfortunately, hedge funds often entail low liquidity and high minimum investments, which makes them a better tool for seasoned investors looking to add interest to their portfolio. On top of that, investors with hedge funds in their portfolio also need to pick the right strategies to ensure peak return, or else their cash might easily be flushed down the drain.
The list of most common hedge fund deployment strategies you can look into includes distressed assets, equity long-short, arbitrage, and macro-trends.
5. Start-ups and private companies
Since technology is developing quickly it is always a good idea to invest in companies specializing in those fields. So, as an investor, you cannot make a mistake if you directly invest in a private company or a start-up.
What is more, investing seed capital in such companies is often called angel investing. There is always a high return strategy and a high risk for investors, but not all start-ups end up failing. Also, besides the new and growing companies, you can turn to more mature ones, since they always seek investment capital during their life cycle.
6. Fund of funds
Such investments include investing in large vehicles. However, those are not just any large vehicles, but the ones that form funds to invest in some other alternative. As an investor, you can often acquire more gain diversification if you invest in several asset classes, strategies, or managers.
7. Private equity
Today, private companies are outnumbering the public ones, and that is why many of them will seek for investors. These types of firms usually raise their funds and take investments from both institutional and non-institutional investors.
Further, those funds are used to place investments in promising companies and the capital is thus returned to the investor upon exiting event. This term, private equity, is broad and it includes private companies that can include start-ups, financing through phases of a growth of a company, venture capital and so on.
8. Private placement debt
This is also one big market in the space of alternative investments. It is similar to equity, but there are no private placement bonds issued or traded in public. Also, they do not have to be rated by an agency for credit rating. For example, mezzanine debt and promissory notes are often used to fund private companies, but the investors are given steady cash flow.
If you’re looking to boost investment portfolio diversity and ensure high and safe yield, you can invest in fine art, real estate, or precious metals, or you can pool your cash with other investors into a hedge fund and hire an expert to keep an eye out on your interest.
Each of the alternative investment types listed above has its advantages and downsides, and not each and every one of them will fit your bill in the long run. Nevertheless, if you think through the venture before you make it, the high return will certainly find its way into your piggy bank within a few years’ time.