Saving cash in money markets or CDs, and investing in the stock market via stocks and bonds through 401(k)s or IRAs are where many of us start when looking to grow our money beyond a simple savings account.
As we continue to look for ways to build our wealth and secure our financial house we hear advice about diversifying into other asset classes or alternative investments. But what qualifies as an alternative investment? Are they safe?
Alternative Investments, What Are They?
An easy way to start with what they are is to understand what they are not.
Alternative investments are a wide range of assets not categorized as one of the three traditional investment types – cash/cash equivalents, stocks (equities), or bonds.
Most alternative investments are considered ‘illiquid assets’ as compared to the traditional asset classes – because they are more difficult or take more time to sell.
The variety of alternative investments available is vast, as is the complexity, challenges, and potential risks they may come with. Yet, they are not all regulated as tightly as traditional investments. Below we list many examples of alternative investments.
Types of Assets Considered Alternative Investments
- Fine Wines
- Historical Artifacts
- Luxury Vehicles
- Rare Coins
- Rare Stamps
- Sports Memorabilia
- Commodity Futures
- Hard Commodities – Natural Resources or Mined commodities, such as oil, gold, copper, iron, etc.
- Soft Commodities – Agricultural or Grown commodities, such as livestock, coffee, corn, wheat, soybeans, etc.
- Lite Coin
- Stellar Lumens
- Many More
- Equipment Leasings – Such as Large Business, Construction, and Industrial Equipment
- Equity (Stock) in Private Companies
- Hedge Funds
- Infrastructure Funds
- Intellectual Property – Copyrights, Patents, and Trademarks
- Music Royalties
- Peer-to-Peer Lending
- Privately Held Mortgages
- Real Estate
- Structured Settlements – i.e., Lawsuit Compensations or Lottery Winnings
- Tax Liens
- Venture Capital Funds
As you can see, there are plenty of alternative investment options to consider, but that doesn’t necessarily mean you should put your money in any of them.
Is Investing in Alternative Assets Right for You?
Alternative investments can diversify your portfolio, hedge against inflation, provide favorable tax treatment, and provide you with an opportunity to create wealth in a particular area of interest. But they can also be complex, carry considerable risk, have high fees, and generate tax complications if done improperly.
As with any investing, you should not risk any of your money in something you don’t understand, and that is especially true with alternative investments.
Traditionally, alternative investment assets were only held by institutional investors and the wealthy as many alternative investments, such as hedge funds, were only available through brokers with high minimum investments and fee structures. But today’s market is changing.
While some options are more easily accessible than others, they all need to be carefully researched, so you clearly understand the accessibility, risks, volatility, tax implications, and fees associated with them. Obtaining professional advice or assistance in securing any of these assets is strongly recommended.
Where you are in life – just starting a family or nearing retirement, your goals, your risk tolerance, and your patience level are all important considerations when establishing an investment plan. And that’s where speaking with a professional may help as they can aid you in evaluating the whole picture.
While a financial professional can assist you with a variety of investments, it’s also wise to also speak with tax experts and professionals within the alternative investment space of interest to you. And be sure to research your investment professionals as well to protect your assets further.