Top 10 Alternative Investment Options to Watch Out for in 2022
There are several long-term and short-term investment options available, which one can opt for in accordance with their goals and ability to bear risk. However, there are so many options out there that it can easily be an overwhelming experience to select the right investment. Thus, we bring to you the best alternative investment options available to diversify your portfolio.
What Are Alternative Investments?
The term “alternative investments” refers to any investment that is not publicly traded, meaning it sits outside of the traditional markets of stocks, bonds, and cash. Alternative investments provide exposure to multiple market sectors and provide an opportunity to potentially earn higher returns than traditional investment avenues. The term “alternative” simply means that these investments are relatively recent and does not indicate that these investments are uncommon or unpopular. Examples of alternative investments include the oldest types of investments like real estate and angel investing.
What is important to note is that they are more complicated, less regulated and have a greater risk as compared to other investments. So, educating yourself is vital to increase your knowledge and ensure you understand what you are getting into.
“Alternative investment refers to any investment that is not publicly traded, meaning it sits outside of the traditional markets of stocks, bonds, and cash”.
Characteristics of Alternative Investment Options
Alternative investments are characterized by lower liquidity, less transparency, potential for higher returns, high risk, complicated investment structures, etc. as compared to traditional investment avenues.
Types of Alternative Investments
It is important that when you’re looking for alternative investment avenues, you avoid scams and go for legitimate sources that can help you increase your returns. To help you find similar investment opportunities, we’ve compiled a list of authentic alternative investments that you should consider in 2022.
Private equity mainly comprises capital that is not listed on a public exchange, that is, it is not publicly traded. When dealing through private equity, investors invest their funds directly in private companies or buy public companies, leading to the delisting of public equity.
An angel investor or a seed investor is a wealthy individual interested in providing finance to small business ventures or small startups and entrepreneurs. In return, the startup provides him or her with equity or ownership rights in the company.
Venture Capital (VC)
Venture capital (VC) is a type of financing that investors provide to startup companies and small businesses that have growth potential in the long run. Banks, wealthy investors, investment bankers, and other financial institutions often go for venture capital. Venture capital generally comes from wealthy investors, investment bankers, and other financial institutions. It can even be provided through technical or managerial assistance and is not necessarily in the form of monetary support. Your pro rata rights can be used to achieve good returns through VC by doubling down on successful companies. What may help here is a VC Cap Table (capitalization table) to provide a summary of the investor and employee ownership in a startup or venture-backed business.
Private debt includes any form of loan extended or given to privately held companies. While it can take many forms, it is usually extended by non-banking institutions to private companies. Many investors, or private debt funds, go for alternative investments through private funds. It is used to fund business growth, infrastructure, and provide working capital, amongst other uses.
Real estate mainly involves buying or owning property. People choosing this mode of alternate investment often buy a house, an apartment complex, or any other form of dwelling and have tenants live there, from whom they ensure their returns in the form of rental income. Real estate investments can be direct or indirect, in the public market (e.g., REITs) or private transactions, and in equity or debt.
Gold is an attractive source of investment for many because it is a tangible, liquid asset whose value is immune to inflation. It is a strong competitor to stocks and is considered one of the safest investments as it has always recovered its value quickly from economic downfalls.
Cryptocurrencies such as Bitcoin
Cryptocurrency (crypto) is a digital currency system. Through encryption and cryptography methods, it confirms and secures any transaction on a shared ledger such as a blockchain. Cryptocurrency as an investment avenue is quickly gaining popularity in countries such as India due to digital innovations and its active advertisement across all digital platforms.
Owning Your Own Business
One can always provide funds on their own to finance their business. This can potentially provide the highest returns when compared to any other investment avenue. While there is a certain risk factor associated with this type of investment, over a period of time, you can potentially ensure a steady income from your business, allowing it to grow overtime.
Commodities such as crude oil, wheat, or coffee
Commodities are an attractive source of alternative investment as they can provide investors with diversification of their investment portfolios, immunity against inflation, and more returns. They can even deal in commodity-based futures, stocks, ETFs, or mutual funds, etc.
Under this avenue, one can invest in companies offering their shares for subscription on crowdfunding sites like kickstarter.com, Indiegogo, etc. If you go for this type of investment, you will be rewarded if the company you have invested in succeeds. The downside to this is that you can lose a lot of money if your company is not successful. You can start investing in equity crowdfunding with just a few hundred dollars.
Why should you invest in Alternatives?
Alternative investments can contribute to the diversification of your investment portfolio because they often move in the opposite direction to traditional investment avenues like stock or bonds. This means that they have low correlation with standard assets. Investments in hard assets, such as gold, oil, and other commodities can make your funds immune to inflation, which hurts the purchasing power of paper money.
In addition to benefits like higher returns, alternatives may also provide investors with a way to support any cause that they care about like environment-friendly production methods, for instance. This can give them a chance to make a difference by contributing towards social entrepreneurship.