Alternative assets are very popular among investors nowadays. They offer a large variety of investment opportunities than traditional investing options. The investment in alternative assets yields return depending on the volatility of the assets. You can invest in alternative assets through an alternative asset management company. In this article, we will tell you what are alternative assets and why it’s a good idea for you to invest in them.
What Is an Alternative Asset?
Conventional investment categories include investing in stocks, bonds, and cash. But the assets that do not fall into these categories are called alternative assets. Examples of alternative investments include hedge funds, real properties, commodities, venture capitals, tangible assets, etc. Most of the time alternative assets are held by institutional investors or high net worth individuals or both! But retail investors have the opportunity to invest in them through alternative funds, ETFs and mutual funds that have portfolios of alternative assets.
How Does It Work
Alternative investments usually have higher minimum investments and fee structures than mutual funds and ETFs and they also have lesser opportunities to publish verifiable performance data and show them to potential investors. Alternative investments have lower levels of turnover than conventional assets and for that, they have lower transaction costs. But they have a high initial minimum investment.
More About Alternative Assets
Alternative assets have a low correlation with standard asset classes and for this reason, they move to the opposite of the stock and bond markets. This is a very good reason why alternative investments are a good tool for diversifying your portfolio. Moreover, if you invest in alternative hard assets like gold, oil, and real estate, you will have an effective hedge against inflation when it hurts the purchasing power of paper money. This is the main reason why big institutional funds e.g. pension funds allocate a small portion of their portfolio to alternative assets.
Complementing a Traditional Portfolio
Let’s say you have a portfolio that includes assets like stocks and bonds. But you are worried that the portfolio is still not diversified enough despite investing in different industries. What you can do in this scenario is to invest in alternative assets. There are a lot of alternative assets that will complement your portfolio if you invest in them.
For example, let’s say you have decided to invest in golds. You buy some gold bars and keep them in a safe deposit in a bank. You know the price of gold will grow over time. Another idea is to invest in real estate and even if you don’t want to be a landlord you can just invest in REITs. You can also invest in alternative assets like ETFs.
Investing in alternative assets can be done by yourself or you can choose alternative asset management or a private placement alternative investments company and invest through them. Either way, if you invest in alternative assets, you may not have a highly liquid asset but you will surely gain in the long run.