(Yahoo!Finance) - Interested in exploring alternative investments as a way to diversify your portfolio? Keep reading to learn more about the types of alternative investments available and how you can start investing in each.
What Are Alternative Investments?: Most people realize that investing is an important part of planning for short- and long-term financial success. Wise investing grows wealth, which leads to greater financial independence. Profits realized from smart investing can generate passive income, which can allow you to retire comfortably, retire early or both.
Many traditional and alternative investment opportunities exist to achieve these goals. Although stocks and bonds may get the lion’s share of attention in the press, alternative investments can build wealth just as effectively as the market.
What is an alternative investment? An alternative investment is considered as anything besides traditional securities like stocks, bonds and mutual funds.
Why Invest in Alternative Assets?: The farmer’s adage that says “don’t put all your eggs in one basket” applies on the farm and on Wall Street.
Although the stock market has performed well on average over time, investors have been ruined by only investing in a single company or sector that crashed.
Institutional investors and pension funds have well-thought-out, well-executed diversification strategies. This process usually involves acquiring a mix of traditional investments, tangible assets and real property, as opposed to just investing in stocks and bonds.
Fund managers who don’t diversify portfolios could almost be accused of negligence. The same thing holds true for the individual investor.
It’s possible that in one horrific day of trading (take Oct. 19, 1987’s Black Monday, for example), even an investor with a diverse stock portfolio could be ruined.
However, an investor with a diverse portfolio of alternative assets could be much better equipped to ride out the storm than an investor who only has stocks. No investment portfolio is complete if it’s not diversified across a number of different asset classes. That’s why making wise alternative investments is so important.
Types of Alternative Investments
Real Estate: Real estate is historically one of the highest performing alternative assets. Ironically, although real estate is considered an alternative asset, it’s where most everyday Americans have the bulk of their wealth concentrated.
However, owning your own home is not the only way to invest in real estate. Now that the price of property has skyrocketed in most major metro areas, buying homes can be out of reach of many Americans. Fortunately, they can still make alternative investments through real estate crowdfunding sites for a fraction of the cost of buying a home. Best of all, many of these investments offer passive income.
Related: Best Real Estate Crowdfunding Platforms
Venture Capital: One of the main laments of any small investor is that they are not able to get in early on the big bonanzas. After all, by the time companies like Meta Platforms Inc. (NASDAQ: FB) and Alphabet Inc. (NASDAQ: GOOGL) go public, a bulk of the wealth has already been made by early investors, most of whom are usually venture capitalists providing capital for business ventures.
However, it’s also very expensive and most investors simply don’t have the financial muscle to become venture capitalists. However, venture capital funds and startup crowdfunding platforms give retail investors the opportunity to take a chance on a wide range of early-stage companies.
Related: Top Startups to Invest in
Art: Everyone has heard a story about an original work of art by a master like Rembrandt or Norman Rockwell selling for millions of dollars at auction. Whether it’s statues, paintings, lithographs or photos, wealthy people have been collecting art for centuries.
Going all-in on a multi-million dollar painting isn’t a wise choice for most investors, but there are a growing number of options available to either invest in an art fund or even by shares of paintings that are expected to increase in value.
Related: The Best Art Investments for 2022
Wine: The saying “in vino veritas” translates roughly to “there is truth in wine.” Thanks to the rise of cooking culture and the popularity of movies like “Sideways,” investors can potentially find strong returns in wine investing. The finite quantity produced by top vintners shows why wine can have potential as an alternative investment.
However, as is the case with art, purchasing and storing wine poses its own logistical challenges. The good news is that it’s now possible to buy and hold elite bottles of wine or even buy individual shares in highly sought-after bottles through online platforms that handle all of those details.
By Kevin Vandenboss
