When you think of investing, what comes to mind? If you’re like most people, you typically consider just two options: the 401K, which you have earned while working, and the money in your savings bank account.
Many people view investing as putting money in traditional vehicles such as stocks, bonds, or cash. These methods can be very successful but they are quite traditional. And they may not provide the higher returns that you need to increase your net worth.
The following four investments are worth looking into if you’re looking to improve your investing skills.
These are the four kinds of alternative investments that you need to be familiar with as you search for new investment opportunities. These are the types that many wealth-management companies will offer their clients.
1. Private Equity
Private equity basically means the capital investment made in companies that aren’t listed on the New York Stock Exchange (or other stock exchange). Privates equity can include growth capital (which helps mature businesses with restructuring) and venture capital (which focuses on ventures in their early stages).
These are considered high-risk investments and should only be undertaken by qualified investors. You might want to look at something less risky if alternative investing is new to you.
2. Commodities
Commodities can be real assets such as natural resources (gas, agricultural goods, metals, etc.) Because they are not affected by changes in the public equity markets, they can be a reliable barrier against inflation.
Because supply and demand affect the value of commodities, investors will make greater profits if commodities are in greater demand — and vice versa.
Commodities are one of the best-known investments around the globe. They’ve been traded over many thousands of years and don’t seem to be going away anytime soon.
3. Real Estate
Real estate is a popular and respected type of alternative investment. In fact, real estate is the largest asset class in the world, so there are plenty to choose from.
You will need to be able to value assets and decide when to use income capitalization and discounted cash flow to become a successful real estate investor.
Real estate investing can provide additional leverage through loan products like mortgages. Investors can purchase properties that have lower upfront cash requirements, which can increase their gains. There is little risk of property values falling significantly (assuming that we don’t experience the situation we did in the Great Recession). Lenders are happy to lend money to investors at loan-to-value ratios that are pretty high.
There are many ways to invest in real property — some passive, some very hands-on.
4. Collectibles
Collecting vintage baseball cards and buying classic cars are not just hobbies or used to show-off. These collectibles can have a serious financial value.
To be valuable, however, these items will need to be well-maintained and kept safe so they can continue to grow more valuable over the years. It’s essential to have experience, knowledge and interest in these collectibles, whether they be rare stamps or modern art pieces.
The Takeaway
Alternative investments might be considered risky by some investors. But the truth is that all investments do. Selected and managed carefully, alternative investments can help you manage risk in your portfolio. However, before you invest any significant money, it is a good idea to consult an investment advisor.