Is it a bear market or a bull market? Is a recession on the horizon, or would top analysts say we’ve been cruising toward one for years? No matter your interpretation, today’s market conditions and economic forecast make it clear that diversification is the way to survive.
But even when researching other options, the savviest investor can be inundated with attention-grabbing attempts at their hard-earned money. The landscape of alternative investments often comes with new rules, terms, and qualifications that generally aren’t well known.
That’s why researching potential options, carefully vetting providers, and analyzing your strategy and risk tolerance are essential steps before investing. Get to know some of the alternative investments available and why they just may be the diversification you need.
1. Hedge Funds
When you think of hedge funds, your mind may immediately conjure up a slick, exclusive New York City operation. Often requiring a significant financial commitment, hedge funds are often reserved for those with big budgets. Investors pool their money together, increasing buying power that is then used to bet on high-risk, high-reward investments.
According to Rocket Dollar, investors must conduct due diligence to ensure their expectations for returns are reasonable. The hope is that the investment appreciates. However, in hedge funds, bets are also made in anticipation of decreased values, so investors could win either way.
2. Real Estate
A more familiar asset, real estate is an investment that many people take part in eventually through their primary residence. However, individuals can pursue real estate investment in a few ways.
First is by the individual purchases of homes, apartments, condos, and commercial space. But this approach can be expensive, time-consuming, and prohibitive for the average investor.
Grouping your funds with other like-minded investors can open up the proverbial real estate doors. This is a great option, especially for those who aren’t interested in taking on a landlord role.
Through a real estate investment trust or REIT, you can access multiple investments, earn solid returns, and distribute risk. Plus, you won’t be on the hook for managing individual properties, instead shifting the responsibility to the REIT.
Startups are one of the hottest investments widely discussed in the business world. These investments offer the opportunity to be on the ground floor of emerging technology and solutions. But headlines on the newest tech and valuations often indicate that individual investors are late to the venture capital game. Tap into emerging startups through trusted investment providers and their vetting process to place your bets on new tech.
Exposing investors to new ideas and tech, startups have the opportunity to pitch their solutions and request funding. Investments can fuel growth, innovation, or both, offering the chance for investors to experience major returns. Retirement investors can use tax-advantaged funds for even greater earning potential.
4. Private Equity
Private equity can be a more elusive investment, but can also offer exposure to otherwise unavailable earnings. Specific to non-public companies, private equity investments can be used to fund acquisitions and other business needs. This can include improving balance sheets, fueling growth, and purchasing technology.
Investments can also allow investors to pursue publicly-traded companies in an attempt to de-list them from the stock market. This takeover can help investors take advantage of promising companies that may be experiencing regulatory or financial challenges. If successful, new leadership can be put in place to turn things around and improve the investment’s value.
5. Private Debt
Taking on individual debt may reduce your overall net worth, but investing in private debt could boost it. Companies who seek financial support outside of traditional banks and loans may offer their debt as investment opportunities. Not traded on the stock market, private debt may include bonds and can offer higher yields.
Private debt investments allow companies to repay existing loans or obligations in exchange for a set return rate. Popular with government entities, debt bonds can help municipalities manage capital investment with lower risk. Investors benefit from the relative stability of private debt while debtors repay obligations at a lower rate.
Commodities may be much more familiar, as they are essential goods used in households and manufacturing across the globe. Corn, wheat, and soybeans are influential for both consumer use and in the manufacturing of goods. Generally categorized as agriculture, energy, and metals, commodities aren’t going anywhere – modern life relies on them.
These investments can help investors manage inflation, as their returns face less volatility. They mature at varying rates, rising and falling with valuation as the commodity’s demand changes.
Most often sold in futures, they can also be accessed through more liquid exchange-traded funds.
Digital currency is one of the newest investments on the scene, often shrouded in mystery thanks to its complexity. Blockchain technology is the backbone of cryptocurrency or crypto, which establishes a block of data tracking its ownership. Offering a major security benefit, handling cryptocurrency requires care and understanding of its strengths and risks.
While volatile, crypto is a worthwhile investment to understand and consider as you expand your investment profile. There are many cryptocurrency types available today and the potential for more is very real. If you embark on crypto investing, ensure your access point is secure and your goals account for risk.
Take an Active Role in Researching and Monitoring Your Investments
Your financial future isn’t something you want to leave to chance. And you don’t have to, considering the wide availability of information and access to alternative investments. First, assess your investment goals, financial needs, and willingness to engage in your investment pursuits. Once you know what you’re willing to commit to, research the options that match your goals.
Conduct due diligence in your investments and with the providers you use to access them. Generally, most investments are regulated by the Securities and Exchange Commission or SEC. Review filings and reports to assess an investment’s viability based on your criteria and risk tolerance. Make research part of your financial planning strategy, and you’ll maintain a close eye on your investments. If you determine a change or additional support is needed, discuss your goals with a trusted financial advisor.