Are you looking for ways to grow your income, invest for retirement, or speculate on the markets outside of the common world of stocks and bonds? There are plenty of alternative investments to take advantage of in order to diversify your portfolio and explore new territories. An attractive feature of these alternative investments is that they often behave separately from the same old, day to day activity of the stock market. However, it is important to note that there is generally less consensus on the value of such investments, and they are often less liquid.
Private equity is the most popular form of alternative investment. Rather than being limited to the publicly traded companies on the major stock exchanges, investors can offer their capital to private equity firms. These firms seek out promising investments in private companies, with the high risk/reward opportunities coming from start-ups. The Blackstone Group and Kohlberg Kravis Roberts, both based out of New York, are the two largest private equity firms investors can research.
If you prefer to be the sole actor in your investment decisions, it is possible to invest directly in start-ups and private companies. Often referred to as “angel investing”, this strategy requires some level of investment knowledge and proper risk management. Larger, more developed companies are more suited to investors with lower risk tolerance. However, start-ups can provide some of the greatest possible returns. Venture capitalists are investors who specialize in this game of highest risk/reward investments. They often provide the necessary funding for entrepreneurs to bring business concepts to life. Early venture capital investors in some of today’s largest companies have made billions of dollars on such investments.
Instead of investing in companies or placing bets on the success of businesses, individuals can actually invest in real, tangible hard assets like houses, land, gold, oil, or fine art. Real estate and art are known to have solid, reliable returns over the long term. Gold is a common investment for those anticipating economic crisis. A common way of investing in commodities like oil or agricultural products is through purchasing futures, which entitles the owner to a share of production at a future date and price.
If you are still interested in the stock market and macroeconomic trends, there are forms of investment besides stocks and bonds. Hedge funds allow investors to pool knowledge and resources in order to pursue an investment strategy. They often utilize a wide range of financial instruments, including options and swaps. Fund of funds establish multiple funds and are advantageous because the diversification of investments reduces risk.
Overall, alternative investments can have high up-front costs, but can offer investors the opportunity to invest in entirely different assets. They can range from very high risk/reward, to stable, long-term investments. Diversification of these investments always serves to reduce risk. Research into an expanded set of asset classes can help individuals multiply their income or expand their retirement savings.