An Introduction to Alternative Investments
Are you bored of vanilla ETFs? Tired of underperforming stocks? Are you looking for some more lucrative opportunities, or maybe just wanting to diversify your portfolio? Welcome to the world of alternative investments!
An alternative investment (sometimes I’ll refer to them as AIs, don’t get confused) can be pretty much anything that isn’t a typical asset class (stocks, bonds and cash), but there is a huge universe of investment opportunities, ranging from the more recognised classes such as property and real estate through to the much more unconventional and tangible, for example wines, stamps and art.
These types of assets can be much more complex and illiquid, as they are not as easily traded as you would a stock on the LSE, and are very much dependent on market conditions when it comes to finding a buyer. Some assets such as collectibles will only tend to appreciate greatly if held for extended periods of time, as you need to wait for them to become more limited in number and desirable, thus driving the price up. These kind of assets can also be costly, with no return on investment until they are sold, and depending on the type of asset you may also need to factor in additional costs such as insurance or even storage, anyone remember the $40 million elbow? Yeah. Maybe it’s better to stick to digital assets sometimes.
Some things that you never purchased as investments can also become them without you realising, take my dusty old Nintendo collection… Originally I bought my Nintendo consoles to, you know, play games on, however now the value of retro consoles is soaring, why? Maybe due to nostalgia, maybe due to the fact the latest call of duty games take less time than a pizza delivery to complete. Anyway, this presents an opportunity, so just in the way you would with a stock, you DYOR, evaluate the market, and assign a target price for your asset. I’ve acquired more to my collection since considering them an investment a few years ago, but if I was to sell at current prices, I’d estimate the return to be in the region of 400–500%. Not including the value I received from the Ocarina of Time, of course.
The above is a pretty niche example and unfortunately not a very lucrative one, the more substantial AI opportunities are typically hard to come by without large amounts of capital behind you, a new skyscraper on Threadneedle St doesn’t come cheap! However, all is not lost, there are opportunities to get involved in these types of investments through traded funds such as real estate investment trusts (REITs) and ETFs (sorry to the whiskey investors), which allow you to track their performance whilst protecting yourself through diversification as ever. Or you could always just start a spoon collection, I don’t know.
TL;DR — Alternative Investments offer a good way to diversify your portfolio, and can potentially be very lucrative, however these opportunities are typically hard to access for the average retail investor, and you need to be aware of their illiquidity and costs before committing your capital.
