Why More Consumers Are Seeking Alternative Investments
By Jennifer Gretson January 27, 2017
Investments provide financial stability to consumers, especially financial-savvy individuals looking for a better income. Here are some alternative solutions for new investors
(Newswire.net — January 27, 2017) — For decades, investors, professionals, and wealth-builders have relied on so-called “traditional” investment vehicles to earn a return over time. These traditional methods have a long history of stable, relatively high returns, so there’s a perception of minimal risk and ample information to help even the most inexperienced newcomer become involved. For example, buying stocks and bonds is relatively simple, stable, and almost universally agreed upon as a suitable capital investment—mutual funds and real estate often fall into this category as well.
However, modern consumers are starting to look at alternative investments, which stray from “conventional” standards either because they’re riskier, newer, less tested, or involve unknown variables. What you need to know about alternative investing is this: it’s on the rise, and there may be a benefit in jumping in early.
Types of Alternative Investments
If you’re still not sure what qualifies as an alternative investment, here are some examples to demonstrate how varied these approaches can be:
Venture capital. Venture capital is typically carried out by firms or organizations. The idea is to invest a fixed amount of capital in startups with high growth potential in exchange for a share in the company, which can have a tremendous yield if the company takes off.
Private equity investing. Private equity is a broader category of a similar strategy and is often carried out by individuals. Again, the idea is to invest capital in a young business or startup in the hopes of reaping profits when that business develops.
Private lending. Private lending has grown in popularity in recent years, thanks to peer-to-peer apps that make it possible, such as Lending Club. Here, you may lend some of your own money to one or more private borrowers, who pay you back with interest.
Hedge funds. Hedge funds are a specific type of pooled investment fund that uses high-risk or otherwise questionable strategies in the pursuit of high gains. This can happen because hedge funds are subject to less SEC oversight than other types of funds.
Currencies. Currencies are constantly shifting in value against each other as various countries grow or shrink economically. Investing in a country’s currency when they’re poised for growth with an app like XE could result in a major gain.
Commodities. Commodities are things like iron, sugar, or other commonly traded goods that vary in price. They’re slightly riskier and more volatile than stocks (as a general rule).
Other tech-based solutions. There is also a rising number of new apps and technological solutions opening the doors to new investment possibilities. The rise of machine learning and automated investing solutions, like Wealthfront, is an example of this.
Why the Alternative Investment Movement Is Growing
These are great examples, but why is the alternative investment movement growing in the first place?
Fear of crashes. We’ve only now begun to recover fully from the economic crisis of 2008, when real estate and stock market prices plummeted and the world economy was in turmoil. Seeing this volatility, many investors have less faith in conventional investments and are flocking to newer methods that haven’t been as shaky in recent memory.
Investment novelty. Some investors simply like the thrill of it. They may be personally interested in these alternative investments or may have fun trading. They may also be bored of traditional investments, or may enjoy the rush of a potentially high return (even considering the risks involved with various methods).
Diversification. Alternative investments also present a valuable opportunity for diversification. If your portfolio is full of exclusively traditional investments, like stocks and bonds, it’s likely to take a major hit in the event of economic instability. Alternative investments can protect you from that.
Availability of technology. The sheer amount of new technology, mostly in the form of consumer-facing apps, is making investing easier and more accessible to new portions of the population. This makes alternative investments less hypothetical and more practical for the everyday consumer.
Are alternative investments easier than traditional investments? Will they bring you a higher return? Are they even worth considering? You’ll get different answers depending on who you ask and which specific option you’re referring to, but one thing’s certain: alternative investments will keep growing in diversity and availability for the foreseeable future. If you’re interested in getting involved in something new or diversifying your traditional portfolio, this is a good opportunity to get involved. Otherwise, you may be more comfortable sticking with what you know has worked in the past.