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What Are Alternative Investments?

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Of all of the ways to turn your money into more money, they all require you to make some kind of investment. However, if you don’t have the time to run your own business, then there are other ways to invest your money and see significant gains.

Usually, when people think of investing, they’re thinking about putting their money in the stock market or buying bonds. While they’re the most popular ways to invest, those aren’t the only ways to invest. Depending on your financial situation and long-term goals, an alternative investment may be better for you. Continue reading to learn more about alternative investments and what they are.

So, what are alternative investments?

If you’re not an investment expert, then you’re probably wondering, “What are alternative investments?”

Alternative investments are investments that don’t fit into the category of conventional ones like stocks and bonds or even cash. Alternative investments are often tangible assets like precious metals and gems, limited-edition or antique collector’s items, and land. Venture capital and hedge funds also fit into that asset class.

Most alternative assets can be considered tangible assets because many of them are physical in nature.

While alternative investments are regulated and fall under the authority of the Securities and Exchange Commission (SEC), the SEC doesn’t monitor the movement of alternative assets the way they make traditional investments. So, when it comes to alternative investments, potential investors need to do their due diligence.

Alternative assets tend to require a more considerable minimum investment than stocks as well. Mutual funds and hedge funds are prime examples.

When it comes to hedge funds, the minimum investment is usually around $1,000,000, and even “lite” hedge funds require at least a $100,000 buy-in from individual investors.

One of the great things about tangible investments is that you can have them examined by appraisers who specialize in different types of tangible assets. So whether you’re considering buying gold, land, or an antique car, it’s in your best interest to get an appraisal of the tangible asset before making a purchase.

Alternative investments often trend in the opposite direction of traditional ones.

The stock market is fickle, and learning how and when to buy or sell stocks can be tricky. You don’t really have to watch the market as much with alternative investments like you do with the public needs.

When it comes to alternative investments, one thing that separates them from conventional investments is that they’re much more long term. People who trade stocks may make trades on a weekly or even daily basis, but alternative assets aren’t as easy to move, and therefore, they don’t move as frequently or quickly as stocks.

There is a low correlation between traditional investments and alternative assets, meaning that when traditional investments are plummeting, alternative investments may increase in value. In fact, many investment gurus encourage potential investors to diversify their investment portfolios with alternative assets in times of stock market uncertainty.

Who should invest in alternative assets?

There is no one investment strategy that’s right for everyone, so who exactly are alternative investments ideal for? Being that tangible assets can fall victim to human error and lose their value or depreciate over time, they’re more suited to older, more experienced investors.

Most potential investors don’t have millions or hundreds of thousands of dollars to invest in art, gold, real estate, hedge funds, or antique cars. Because they’re so expensive, alternative investments are also more ideal for experienced institutional high-net-worth individuals, and even then, the investing is better left to institutional investors.

If you’re not an experienced investor, then you should probably start out investing in the public markets rather than investing intangible assets. However, as you grow your investment portfolio, it would be wise to add a tangible asset or collection to your repertoire to diversify your assets.

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