The entire world is facing an economic crisis due to the COVID-19 pandemic right now. People are struggling to make ends meet. There are less jobs in the market, forcing fresh graduates to stay in school longer and opt for post-graduate degrees. Still, there is no guarantee that they’ll get a proper job after it. People’s savings have run out. Without exception, it has negatively impacted investors as well. With the shut down of the world during the year long lockdown, the stock market suffered. Investors who had all of their money invested in the stocks feared great loss. It is understandable then, why more and more people are looking for alternative Investments and investments other than stocks. That’s why, here is a quick, beginner’s friendly guide to understanding alternative Investments.
What is Alternative Investments? Why is it Preferable to Traditional Investment Methods?
Alternative Investment refers to any kind of investment made outside of the traditional investment. Traditional Investment includes public stocks, cash and government as well as corporate bonds. So, if you make an investment in anything other than this, it will be considered an alternative Investment. Some popular alternative Investments outside stocks consist of real estate, precious metals, collectibles, hedge funds, private equity, private Loans, etc.
Typically, alternative modes of investment require more work than traditional investment. That’s because of the complex and diverse nature of Investments other than stocks. Since they range from real estate properties to collectibles like wine and antiques, it is difficult to know all the laws and regulations regarding them. Similarly, there is less research and data available for alternative Investment as compared to traditional investments. This makes forming investment strategies all the more difficult for investors.
Usually, people interested in investing alternative type investment hire firms and fund agents to help them make a better financial decision. Not to mention, the minimum investment period for alternative Investments is ten to fifteen years. All in all, this makes it very high maintenance. However, the up side to this kind of investing is immunity to stock market crashes that could lead to you losing all your money. Moreover, you don’t have to be a professional or high net worth investor to Invest in alternative methods. It is for anyone and everyone. Not to mention, the high returns and profits you get when investing in alternative means.
Difference between High Net Worth Investors and Retail Investors
High Net Worth Investors are usually professionals whose primary job is to make investments. Like the name suggests, these people have a high net worth which makes some investment options more accessible to them than others. For example, hedge funds, private equity and venture capital are all types of Alternative Investments that usually only high net worth investors can invest in.
On the other hand, retail investors are non-professional people who make investments in their own accounts. This refers to common folks like you and me who do not posses much knowledge about investing but would still like to make investments for the sake of financial stability. Usually, retail investors employ a financial or brokerage firm to help them manage their investments.
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Top 8 Alternative Investment Ideas Outside Stocks to Start Considering Today!
Here are some of the best alternative Investment ideas to get you started. These are relatively safe and good for people with low financial risk tolerance. It is crucial that you know your risk taking level before making any big investment.
1. Precious Metals like Gold
This one is a no-brainer. Gold is valuable. In fact, it is one of the most valuable metal in the world. Both, historically and currently, gold is used as a currency, rightfully making it a symbol of wealth and prosperity. Although, the monetary worth of gold fluctuates, it never decreases to the point of zero. That’s why, gold is one of the best and safest alternative Investments to make. It doesn’t even require much financial know-how and industry specific information to make this investment. If you have the money, you can just buy gold jewelry or gold bars. This way you always have a secure investment you can capitalize on any time.
In terms of alternative investment, commodities refer to raw materials or agricultural products that people can invest in. These raw materials can range from energy resources such as crude oil and natural gas to agricultural products like corn, wheat, soybean, rice, etc. It also includes precious metals such as gold, silver and copper. All these raw materials are called commodities. The idea behind investing in commodities is that they never go out of demand. There will always be demand for food materials, which makes it a safe investment.
More demand lead to more supply which results in more profits for the investors. One of the biggest benefit of investing in commodities is that they give you protection against inflation. This applies to every physical asset you invest in. It is not possible for retail investors to invest in commodity funds on their own. Therefore, it is usually done through asset managers and firms.
It is not difficult to see art as an alternative investment asset. For hundreds of years, artworks by famous painters has been sold for millions of dollars. According to Deloitte Art and Finance Report 2019, the global value of the art market was 1.7 Trillion Dollars. Admittedly, it is a niche for only the ultra wealthy and rich population of the world. Even during the COVID-19 pandemic, auctions to sell art and paintings was held. Since, the market consists of billionaires, the economic crises had no effect on their purchasing of art. This is why, art makes for such a lucrative alternative Investment.
The same is the case with antique collection. Antiques are also tangible assets that can bring in huge amount of money years later. Most people find out by chance that their grandparent’s old furniture is rare and holds high value. You can easily cash on it by selling it immediately. However, becoming an antique investor is more work. You need to have a good eye for what’s rare and valuable and invest in only that. Antiques are long-term investments outside stocks, with usually high return on investment if you have the patience and know-how for it.
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5. Collectables Like Coins and Stamps
Collectables like Stamps and coins are making a comeback when it comes to alternative investing. Philatelic investment refers to investing in rare postage stamps in order to gain high profits. According to an estimate, the market for philatelic investment is at £5 Billion. Same is the case with rare coins. For example, an 1846 gold coin of $2.50 can bring in as much a thousand dollars since only 150 of them were ever issued. It is a worthwhile market with its own tracking index called PCGS300, where you can track the value of any rare coin. So, try searching up the attic, valuable collectables could be hiding in your home!
6. Real Estate
This is one of the most popular investments other than stocks that people are most familiar with. Despite speculations that US Real Estate Bubble will burst soon, it hasn’t come to pass. Real Estate is still one of the most lucrative alternative Investments out there. Individual investors can buy commercial buildings, residential apartments and condos as well as vacation houses and villas for the purpose of renting or reselling. Investing in waterfront properties is especially popular these days.
Also Read: Do You Want to Become A Real Estate Agent? Here’s How!
7. Hedge Funds
Hedge Funds or mutual funds refers to the practice of pooling in investments by a group of investors collectively. This structure aims to benefit the participants as it minimizes the risk of loss. However, this type of alternative Investment is only available to high net worth or accredited investors.
8. Private Equity
If you’re interested in Investments outside of stocks, then private equity is a good option for you. It refers to private funds invested in a company directly. When a business is in need, they can reach out to a private equity firm to fund their expansion or marketing projects, etc. As an investor, you will become an investor for this company through the firm who will deal with the negotiation and share prices on your behalf.
To sum it up, there are many ways of making alternative investments other than stocks. These are branched out to various industries and range from easy to difficult. Some require you to be a professional while others can be done by individual, non-professional people. You need to do a thorough Homework and learn all the specifics before investing your Money.