Alternative assets are becoming a more attractive investment compared to traditional assets. With the information gained in this article you will have the ability to understand how to invest in alternative assets as well as the benefit in owning them. Alternative assets are one of the more common investment classes for younger people.Traditional assets are less attractive as time goes on due to them underperforming these new alternative investments. Alternative asset investing is easier than ever thanks to all the apps and services that allow you to invest in these new emerging asset classes.This blog post will break down everything you need to get started. From evaluating alternative assets, all the way to purchasing them.
Alternative assets are assets that are not part of the traditional banking asset class, things such as stocks, bonds, cash and cash equivalent are some common traditional asset classes. While alternative asset classes include such things as real estate, commodities, currencies and collectibles. Some alternative investments are only available to credited investors. Some guidelines will need to be fulfilled to be a credited investor. a net worth and income minimum will need to be satisfied to be considered a credited investor. Though if you don't fulfill the prerequisites necessary there are still options available in the alternative asset market.
Many types of alternative asset classes are not directly correlated with traditional asset classes making it possible to hedge against each other. Some alternative assets classes aren’t easily managed as part of a traditional investment portfolio due to the fact that they're liquidity is questionable, given their nature of unknown yet perceived value until an alternative asset of equivalents sells. They can also be highly speculative by nature given the laws of jurisdiction and or being volatile. This added risk may appreciate value at a greater rate than traditional asset classes. Alternative assets that lack validity in traditional banking may overstep the boundary between alternative and traditional assets. As the asset class becomes more acquainted to the market its recognized and migrates to the traditional space.
While the alternative asset options don’t have definitive requirements besides that alternative investments are assets that have economic value while not being considered a traditional asset. it isn’t the most clear answer to read. Ti may leave you asking “but what are some common types of alternative asset classes?” Here are a few that are worth mentioning.
Hedge funds are commonly an active managed pooled investment, typically only offered to high net-worth individuals. Hedge funds use strategies in a wider range of financial products then most mutual funds. Hedge funds may invest in aggressive strategies with the goal of high returns though can see major losses, that is why hedge funds may be limited to accredited individuals that have a high net-worth.
Private equity typically refers to investment funds that buy and restructure companies that are not publicly traded on a stock exchange. These typically involve a private-equity manager that uses money of investors to fund its acquisition of a firm. The firm then generally has a restructure that attempts to help the generate more profits. It aims to raise the value of the firm to resell in hopes for a high return on equity.
Real Estate properties diversify portfolio allocation in alternative investments through multiple ways. Purchasing a rental property to operate personally is one way to diversify into alternative assets but it accrues more effort and capital upfront then other options available. It has become more common to invest with a real estate investment groups. Most the hassle and headache of personally managing a rental property is taken over by a real estate investment group because the company operating the investment group collectively manages the properties. If its preferred to have portfolio exposure to real estate with out owning properties, real estate investment trusts allow for the use of investors money to purchase and operate real estate properties while paying out dividends. Real estate investment trusts are highly liquid because they are exchange-traded, as an investor you don’t need to handle normal real estate practices. Online real estate platforms on the other hand tend to be illiquid with lockup periods and management fees. Making them less favorable when access to funds is a necessity. Online real estate platforms also referred to as real estate crowdfunding normally takes place online via an online real estate platform. While real estate crowdfunding is illiquid, it also requires less upfront capital then purchasing properties outright.
Cryptocurrency is among the most popular of emerging alternative asset classes. We think that in the future the lines between traditional finance and non traditional finance will merge, and these cryptocurrencies support the network of tomorrow. These networks have a value, and as the network grows so does the fair value for each token. Cryptocurrency is a long way to
Natural resources include commodities like precious medals and other resources such as lumber, coal, gas and water. Agriculture is an other class of natural resources, in sort agriculture are crops and livestock. Agriculture is often grouped in with other natural resources because they are traded in the same method. The value of agriculture is not as durable as other commodities making the store of value questionable.
Collectibles refers to items that are worth far more then its was originally sold for because of rarity and/or popularity. Though collectibles may have a speculative value, do to the circulation of the item. The price for a particular collectible usually depends on how many of the same item are available as well as its overall condition. While not to be confused with collectibles, antiques can be valued as a collectible but collectibles aren't always antiques do to the fact that a collectible has to do with rarity and/or popularity not age of an item. The value of an item may be determined by the personal sentimental value or a common market value. Some things that may be considered collectible are fine arts, classic cars, trading cards and wine. A store of value of for collectible can be hard to maintain because of the items properties. Wine for example needs to be stored in a controlled environment to make sure the integrity is not compromised while the item appreciates value as a collectible. This can be considered lego sets to exotic one of a kind paintings.
These are only some of the more common types of alternative assets. As the financial space is ever expanding, alternative assets are filling the void, the discovery of new alternative assets seems to be limitless. You might spot the twinkle of a new alternative asset that yields a big dividend in an area you never knew about.
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There are so many apps and services available that will help you invest in alternative assets. For each niche of new alternative out there is an app to serve that niche.
Alternative assets are a great investment because unlike traditional investments they are not correlated to the same events. For example, something that may effect the general stock markets well being may not effect an alternative asset at all. This is why its important to be thinking in this way, instead of being left with your entire portfolio being effected by the same event.
Not really. Its hard to say if they are outright. Alternative investments typically have some sort of downside, could be a lack of liquidity, or a lack of clarity around the future. The main way traditional assets are better is because you have a long track record that will allow you to predict the future a bit more clearly. Balancing risk vs. reward is up to each and every investor to define in their own portfolio. As a general rule of thumb if you are younger, you can afford to take a bit more risk compared to someone who is older who needs a bit more security, and has responsibilities such as bills, jobs, etc