An alternative investment is an asset class that isn’t conventional (such as stocks, bonds, and cash). These include private equity, venture capital, hedge funds, real estate, commodities, derivatives contracts, and many more but can consist of anything else that is investable such as wine and music rights.
Correctly investing in alternative assets can generate higher returns and spread out investment risk for investors vs conventional asset classes.
Alternative investments are generally held by high-grade investors or accredited certified and high-net-worth persons because of the complex nature and limited regulations of the assets. They are usually inaccessible to the vast majority of investors due to their high minimum investment amounts and complexity compared to conventional investments.
Due to the complexity and in-depth knowledge/ skills required to invest in alternative assets, most investors invest via dedicated alternative investment funds, which have specialized teams with the necessary experience and skillset to invest in a particular alternative asset class.
Here are the top innovative ways and segments to diversify your portfolio.
With their range of trading strategies and participation in non-traditional markets, hedge funds can provide a level of diversification to a portfolio that can be hard to find elsewhere. Some distinguishing features of hedge funds are:
They offer a broad opportunity set and fewer investment restrictions and can include less correlated investments.
This means an investor may be less impacted by market extremes or volatility.
Investing in private companies offers the potential for enhanced diversification and returns since the factors driving these markets differ from those that drive public equity markets. The benefits of private equity investing can include the following:
Private ownership enables long-term strategic focus versus the general market focus on quarterly earnings.
Historically, investment in commodities such as natural resources, including agricultural products, energy, precious metals, and industrial metals, comes with several benefits. The benefits of commodity investing can include the following:
Commodities rise and fall with supply and demand. The more an entity is in demand, like oil or natural gas, the higher the price and profit for the investor.
These funds can track an index that includes various types of commodity assets.
While known as “true” commodity funds, commodity funds are invested directly in the underground of an asset.
Futures-based commodity funds
These funds offer exposure to commodities by investing in futures contracts without buying the underlying commodity assets. This type of investment may carry a larger risk due to the explosive nature of the market contracts.
Real estate is another popular investment strategy for portfolio diversification. Contrary to popular belief, real estate investing is not just for wealthy investors. Publicly traded exchange-traded funds (ETFs and trusts allow investors low barriers to real estate investing strategies. The benefits of real estate investing include the following:
Real estate investment trusts (REITs) combine the potential of real estate’s increasing value over time with the transparency and liquidity associated with publicly traded stocks.
This type of investment may carry a higher risk. Learn more about REITs and other real estate investments.
TaDo projects deal with real estate investments that are futuristic, classy, and affordable to everyone in India. We aim to pursue perfection and enthusiasm in everyone’s lives through upcoming innovations.