How Alternative Investments Can Protect Your Portfolio
If you are thinking of incorporating some risk into your portfolio to strengthen your investments, you may want to consider alternative investments. Some forms of alternative investment include art, wine, coins, precious metals, and real estate. These investments are often overlooked due to their risky nature. They are often very expensive and it can be difficult to immediately determine the current market value of the investment. The following is an overview of alternative investment and how it can actually protect your portfolio:
What Are Alternative Investments?
Alternative investments include any investment that is not a part of the three most common asset types, including cash, stocks, and bonds. These investments are typically privately held in an investment firm or institution. There are also accredited investors who are individuals with a high net worth. Most are quite complex and have almost no liquidity. They typically have elevated minimum investment requirements and fee structures when compared to other forms of investment.
How Do Alternative Investments Protect the Investor?
Alternative investments are useful in the long term. Investors who are risk averse may not be keen on these investments because they do not show an upside return right away. Instead, they assume a certain amount of risk. Having some riskier investments in a portfolio is ideal because they pay out in the long term. These investments tend to fluctuate in value, hedging risk during short periods of extreme volatility. They are an ideal part of any investment portfolio.
What Are Some Safe Alternative Investments?
Commodities- Commodities are resources that are consumed regularly. These items are necessities, so they are valuable because they have to be reproduced. Examples would include crops, oil, gas, coal, gold, and copper. The commodities market can be unpredictable since they rely fully on nature. However, they make better long-term investments because of their unpredictable nature. Commodities that climb, like gas or corn, often provide impressive returns due to their fluctuation.
Private Equity- Private equity is investing in a company with no public stock issuance. Investors place money into a company in order to receive returns once the company reaches a certain stage. These alternative investments often fund start-ups and are useful in movie investing. Private equity is often reserved for those who have a high net-worth.
Venture Capital- Venture capital is a form of private equity that focuses solely on new projects at their earliest stage of development. Venture capital firms provide money for these projects and receive a return once the company issues stock. The return on investment does not happen until many years after the initial investment, making it an ideal long-term investment.
Hedge Funds- Hedge funds utilize pooled cash that use a variety of strategies in order to generate a positive return. They are typically managed in an aggressive manner and utilize both domestic and international markets to achieve the highest return possible. They are an ideal component to an appropriately diversified portfolio due to their low correlations with traditional forms of investments.
Adding alternative investments into your portfolio can have lucrative rewards. They can generate decent long run returns and post gains when stocks begin to suffer. Much like hedge funds, alternative investments can provide protection when the market falls. They are great for a healthy, long-term portfolio. Contact a business, such as Global Wealth Consultants LLC, for more information.