Alternative Investments: Beyond Property - What You Need to Know

In the world of investing, most people think about shares, bonds, and property. But there's a whole universe of other options called "alternative investments." These choices can help you spread out risk and possibly earn better returns. Let's explore some popular alternative investments beyond property.

What Are Alternative Investments?

Alternative investments are assets that fall outside the traditional investment categories. While we've covered property in a previous post, today we'll focus on other alternatives that might fit into an investment strategy.

Important note: These are typically not recommended for beginner investors. Alternative investments often come with higher risk, more complexity, and can be difficult to convert back to cash when needed. They're usually better suited for experienced investors who already have a solid foundation of traditional investments.

Popular Types of Alternative Investments

1. Precious Metals

Gold, silver, platinum, and other precious metals have been valued for thousands of years. People often buy these when they worry about inflation or economic troubles.

How to invest: You can buy physical metals (coins or bars), invest in mining company shares, or purchase ETFs (Exchange-Traded Funds) that track metal prices.

Risk level: Medium. Prices can swing up and down based on market conditions, but precious metals tend to hold value over very long periods.

2. Collectibles

Items like art, coins, stamps, vintage cars, trading cards and wine can grow in value over time.

How to invest: Buy directly from dealers, auctions, or specialised stores. Make sure to research authenticity and proper storage.

Risk level: Medium to high. Values depend on trends, condition, and finding the right buyer when you want to sell.

3. Cryptocurrency

Bitcoin, Ethereum, and thousands of other digital currencies have created an entirely new investment category.

How to invest: Open an account on a crypto exchange, use investment apps that offer crypto, or buy crypto ETFs.

Risk level: Very high. Crypto prices can change dramatically in a single day.

4. Private Equity

This means investing directly in companies that aren't listed on public stock exchanges.

How to invest: Through private equity funds or venture capital firms that pool money from many investors.

Risk level: High. These investments are often locked up for years and success depends on the companies' performance.

5. Commodities

These include resources like oil, natural gas, coffee, wheat and cotton.

How to invest: Most people buy commodity ETFs or unit trusts rather than the actual goods.

Risk level: Medium to high. Prices can change quickly based on supply, demand, weather and global events.

6. Peer-to-Peer Lending

Online platforms let you lend money directly to individuals or small businesses.

How to invest: Sign up with peer-to-peer platforms like LendingClub, Prosper or Funding Circle.

Risk level: Medium. Some borrowers may not repay their loans, but you can spread your money across many loans.

Benefits of Alternative Investments

  • Diversification: They often perform differently than shares and bonds, helping balance your portfolio

  • Inflation protection: Many alternatives tend to keep up with or beat inflation over time

  • Potentially higher returns: Some alternatives can offer better growth than traditional investments

Drawbacks to Consider

  • Less liquidity: Many alternatives can be hard to sell quickly when you need cash

  • Higher fees: Managing alternative investments often costs more than traditional options

  • Less regulation: Many alternatives have fewer protections for investors

  • Complexity: These investments can be harder to understand and value properly

How to Get Started

If you're interested in alternative investments:

  1. Make sure you already have a solid portfolio of traditional investments first

  2. Start small and learn as you go

  3. Only invest money you won't need for several years (or might never need)

  4. Research thoroughly before committing

  5. Consider working with a financial adviser who specialises in alternatives

  6. Be prepared for the possibility that you might not be able to access your money quickly

The Bottom Line

Alternative investments beyond property can add valuable diversity to your investment mix. By understanding the risks and benefits of each type, you can make smarter choices about which alternatives might fit your financial goals.

Remember that most financial experts suggest keeping alternative investments as a smaller portion of your overall portfolio - typically 10-20% for most investors. This gives you the potential benefits while limiting your exposure to their unique risks.

For beginners: If you're new to investing, focus on building a strong foundation with more traditional investments first (like index funds, bonds, and perhaps property). Alternative investments are generally not suitable for beginners due to their complexity, higher risk profiles, and liquidity challenges.

Before diving into alternatives, ensure you have:

  • An emergency fund covering 3-6 months of expenses

  • A diversified portfolio of traditional investments

  • A clear understanding of your risk tolerance

  • A long-term investment horizon

  • The ability to leave this money untouched, potentially for years

The more you understand these options and your own financial situation, the better your chances of investment success.

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