Alternative Investment

Alternative Investment
• An alternative investment is a financial asset that
does not fall into one of the conventional
investment categories. Conventional categories
include stocks, bonds, and cash.
• Alternative investments can include private
equity or venture capital, hedge funds, managed
futures, art and antiques, commodities, and
derivatives contracts. Real estate is also often
classified as an alternative investment.
 Types of Alternative Investments
1. Real estate as an investment includes
investing in physical properties or property-
based securities such as real estate
investment trusts (REITs), real estate mutual
funds, or crowd funding platforms. In
addition to capital appreciation of tangible
assets, investors strive for operating income
to potentially provide ongoing, stable cash
flow.
 2. Commodities
• Commodities are raw materials such as gold,
silver, oil, or agricultural products. Investors
can invest in these tangible goods that have
real world uses and often perpetual demand
due to the underlying characteristics of what
they are. For example, gold's price is arguably
more stable because it used in a variety of
industries.
 3. Farmland
• A blend of real estate and commodities,
investors can turn to farmland as an
alternative investment. In addition to reaping
the benefits of physical, tangible land, farm
owners may also receive ongoing cash
proceeds should operations and sales of
commodities yield positive results.
 4. Art and Collectibles
• Some investments may double as a hobby,
with art, sports memorabilia, entertainment
memorabilia, or other collectibles acting as an
alternative investments. These items may
have historical worth or develop worth over
time as related parties (i.e. the artist, the
associated movie star, or the associated
athlete) become more historic.
 5. Cryptocurrencies
• The emerging form of digital currency,
cryptocurrency is seen as an alternative
investment as it outside the traditional scope
of stocks and bonds. Though some may claim
cryptocurrency does not offer a strong hedge
against other risk-on investments, it may
provide capital appreciation or passive income
due to staking rewards.
 6. Venture Capital/Private Equity
• Blurring the lines of an alternative
investment, venture capital or private equity
are simply a refined branch of stock
investments. Instead of trading shares of
public companies in an open market, investors
may seek alternative avenues to put capital
into private companies or start-ups.
 7. Peer-to-Peer Lending
• Investing in peer-to-peer lending translates to
making loans to individuals or businesses
through online platforms that connect
borrowers with investors. Peer-to-peer
lending takes a very similar form as investing
with bonds, though it is done on more private
markets and often entail transacting with
riskier clients (thus with higher potential
rewards).
 Alternative Investment
Pros
• May offer diversification
benefits.
• Often have higher return
potential than traditional
investments.
• May offer protection against
inflation.
• May allow investors or more
specifically select investment
preferences.
• May be illiquid and more
difficult to panic sell, creating
unofficial price and value
protection.
Cons
• Often are associated with
higher fees and transaction
costs.
• Often have higher risk than
traditional investments.
• Often lacks regulation or
transparency.
• May be more complex and
difficult for novice investors to
understand or make smart
decisions towards.
• May be illiquid and more
difficult to sell, creating
barriers for those trying to
liquidate.