7 Alternative Investment Ideas

Most traditional investments can be classified as stocks, bonds or cash and they tend to be more liquid. “Alternative investments” (also known as “alternative assets”) are those that cannot be classified into any of these standard investment categories. They aren’t as easy to convert back into cash. However, they can offer other great long-term investment advantages.

There are a wide variety of alternative investment options, but they share three common characteristics:

1. Fewer regulations from the U.S. Securities and Exchange Commission (SEC).
2. Illiquid investments that can’t be quickly/easily sold and converted into cash.
3. Low correlation to standard asset classes, meaning they aren’t affected by market conditions in the same ways as traditional investments.

When it comes to managing your wealth and building a diversified investment portfolio, it is smart to understand the different types of alternative investments available to you. Here are the 7 types of alternative investments:

Real Estate

Real estate is probably the most commonly held type of alternative investment. There are many different forms of real property assets, including land, houses and commercial structures. Real estate is almost always a strong long-term investment option because of property appreciation. There can be liquid elements to it, as well, such as collecting rent payments on an income property. However, the primary real property investment is considered alternative because it can take time to sell if you want to cash out.

Private Equity

There are different types of private equity investments that involve investing in companies not listed on the public stock exchange. Examples include venture capital investments, growth capital investments, ownership shares in a privately held company and buyouts.

Hedge Funds

Hedge funds usually involve investing liquid assets into privately managed funds like pensions, mutual funds and endowments. The goal is a long-term high return on investment. The risk is not having easy access to your money until a certain point when the investment matures based on a specific timeline or growth goal.

Private Debt

Private loans are those not financed by banks or traded on the open market. Companies need additional capital for their business growth. The investor ultimately makes money as the loan is paid off with interest.

Commodities

There are a number of different commodities that will be considered alternative investments. These are real assets like agricultural products, precious metals or oil and gas. Commodity investments are often used to hedge against inflation and values will fluctuate based on supply and demand. Gold and silver are good examples of commodity investments.

Collectibles

Collectibles are another form of alternative investment. They can range anywhere from trading cards and toys to fine art and classic cars. These are physical items (or digital in the case of NFTs) that hold some value in collector markets. The investment is based on speculation that these items will increase in value over time.

Structured Products

Lastly, you have structured products that utilized fixed income markets to determine value. Examples include credit default swaps (CDS) and collateralized debt obligations (CDO). These investments can be risky and complex, but can also offer more customized investment plans to savvy investors who know how to navigate these markets.

If you want to learn more about alternative investments and get the most out of your wealth management plan, contact Illumination Wealth today.