Topic Breakdown - Alternative Investments
Introduction
A financial asset that doesn't fit any of the traditional investment types (stocks, bonds, options, cash) is called an alternative investment. Private equity (which we covered in a previous article), hedge funds, art, antiques, and real estate, are a few examples of alternative investments. Alternative investing strategies are often active and return-oriented, and frequently have unique risk profiles compared to conventional investments.
Investing in Alternative Investments
So how can you get started with alternative investments? Here are a few kinds:
- Peer-to-peer lending: lending money to people or companies via internet platforms that match borrowers with lenders. This way, you can get profits from the interest you charge the borrower.
- Real estate: Investing in real estate is typically profitable in the long run, and you can also rent out your properties.
- Gold: In times of economic recessions, gold has almost always remained stable.
- Crypto: Some investors are able to make incredible returns with cryptocurrencies such as bitcoin, but it is a very volatile investment, so many consider crypto to be too risky to invest in.
- Collectible goods: These can include rare paintings, coins, stamps, etc.
Risks
Most people who invest in alternative investments are typically financially secure, and willing to take on a certain level of risk. The majority of alternative investment types offer significant returns while having a relatively high-risk profile, and there are a lot of detriments to alternative investments, at least for the average investor. This is because to achieve such returns, you might need to keep your money locked up for a number of years, and there's no assurance that you will get those returns at all. These investments might require large upfront capital, and when you need money, you might not be able to get out quickly since buying and selling might be challenging.
Financial Guidance
“Wealth is largely the result of habit.” — John Jacob Astor
Success in anything you attempt can only be achieved if you build consistency and keep going at it every day. Consistency builds a habit, which builds success.
Term of the Week
Annual Percentage Rate (APR): The interest rate for a whole year, rather than just a monthly fee/rate, as applied on a loan, mortgage loan, credit card, etc.