Scan to download the Finder app on iOS or Android
Often, investors put money in stocks and bonds, which are considered traditional types of investments. However, there are many ways to invest, including alternative investments.
Alternative investments are private assets that don’t fall under the traditional types of investments. They include:
The global alternative assets under management (AUM) might grow from $13.74 trillion at the end of 2021 to $23 trillion in 2026, according to a 2022 report from Prequin. It also reported a compound annual growth rate (CAGR) of 10.7%.
In Australia, Austrade reported that Australia reached more than $275 billion AUM before the pandemic. It was the fourth-largest market in the world. So if you are considering alternative investments, these pros and cons will help you make informed decisions.
A lot of investors are looking to have a diversified portfolio. It happens when you have a variety of financial assets instead of a single type. Its primary benefit is to reduce your risk, so you don’t put your “eggs in one basket”.
Having alternative investments gives you a diversified portfolio. Aside from investing in stocks and bonds, you can put your money in a hedge fund, REIT or forex. Such diversification will minimise your financial risks.
It’s easy to see why investors put money in stocks and bonds. You might have invested in Apple, Spotify and Netflix due to their high returns for the last 3 years.
Understand, however, that the recent market is volatile. To counterbalance your traditional investment, consider investing in alternative assets.
Alternative investments have a low correlation with conventional market indices. They will help reduce the overall volatility of your portfolio. If the traditional market is in a downturn, your alternative investments won’t be affected.
Catherine Schwartz, finance editor at Crediful, told me an investment was one of the paths to financial freedom.
She said, “high ROI is the ultimate investment goal. As alternative assets require high minimum investments, expect high returns as well.”
Per Forbes, high ROI (return on investment) in alternative investment shows in a study called The Rate of Return on Everything. It examined the performance of 16 advanced economies for the past 145 years. The study revealed that real estate, one of the alternative assets, provided the best returns.
Financial investments appear to be a serious matter. Of course, you are dealing with money which you plan to grow over time.
It’s especially true with traditional investments, such as stocks and bonds. It is wise to review financial statements and study the market.
However, Daniel Apke, CEO of Land Investing Online, believes investing should also be fun.
“Alternative investments offer more excitement and are less boring. You want to study and learn more about diversifying your portfolio. The more excited you are, the more interested you’ll be in growing your money,” he said.
Alternative investments are more private than public. Their assets are more illiquid than the traditional types. It means that you cannot easily and quickly convert them into cash.
Andrew Gonzales, president of Business Loans, said that illiquidity is one disadvantage of alternative investments.
“You might be tied up to your investments for a longer time. Thus, it will be hard for you to exit and convert your assets into cash,” he said.
Of course, traditional investments are well-established and legally regulated. Most financial investors know what they are and how they work. On the flip side, alternative investments can get complicated. They require research and due diligence.
Jeff Zhou, CEO of Fig Loans, suggests doing homework before investing in alternative assets.
“Assess if you’re willing to navigate through the complex processes. They don’t only require money. You need time and energy to learn how they work and how you’ll grow your money,” he said.
Alternative investments don’t strictly follow regulations in the financial market. They aren’t subject to any reporting requirements.
Let’s take collectibles, commodities and property investments, for instance. Be wary of putting your money in them.
The lack of regulations makes it difficult to value these alternative assets. That translates to pricing difficulty, less transparency and vulnerability to potential scams. Thus, do your research and understand the risks involved before investing.
Not all investors can easily access alternative investments, because many of them require a massive amount of money. They also carry higher fees than traditional investments.
Anthony Martin, founder and CEO of Choice Mutual, recommended taking calculated risks in financial investments.
“The more money you put in, the higher the risk is. But if you know what you’re getting into, you’ll potentially earn many high returns,” he said.
You may invest in stocks and bonds the traditional way. You can also consider alternative investments through hedge funds, real estate or collectibles.
But before taking the plunge, weigh the potential benefits and risks involved. More importantly, seek financial advice from experts for your portfolio.
Nate Tsang is a serial entrepreneur, part-time investor and founder of WallStreetZen. He holds a Juris Doctor (JD) degree from UAlberta Law and is passionate about building great software that delights users.
Disclaimer: The views and opinions expressed in this article (which may be subject to change without notice) are solely those of the author and do not necessarily reflect those of Finder and its employees. The information contained in this article is not intended to be and does not constitute financial advice, investment advice, trading advice or any other advice or recommendation of any sort. Neither the author nor Finder has taken into account your personal circumstances. You should seek professional advice before making any further decisions based on this information.
Images: Supplied, Getty Images
Stay on top of your credit file.
Compare, cut costs and connect faster.
With the cost of living rising, how can you get more in your pocket?
Get up to 150,000 bonus points with a new credit card.
You are about to post a question on finder.com.au:
Straight to your inbox
Level 10, 99 York St, Sydney, NSW, Australia 2000
Finder acknowledges Aboriginal and Torres Strait Islanders as the traditional custodians of country throughout Australia and their continuing connection to land, waters and community.
Disclaimer – Hive Empire Pty Ltd (trading as finder.com.au, ABN: 18 118 785 121) provides factual information, general advice and services on a range of financial products as a Corporate Authorised Representative (432664) of Centra Wealth Pty Ltd AFSL 422704. Please refer to our FSG – Financial Products. We also provide general advice on credit products under our own Credit Licence ACL 385509. Please refer to our Credit Guide for more information. We can also provide you with general advice and factual information on about a range of other products, services and providers. We are also a Corporate Authorised Representative of Countrywide Insurance Group Pty Ltd trading as “Austbrokers Countrywide” ABN 51 586 953 292 AFSL No. 511363 for the provision of general insurance products. Please refer to our FSG – General Insurance. We hope that the information and general advice we can provide will help you make a more informed decision. We are not owned by any Bank or Insurer and we are not a product issuer or a credit provider. Although we cover a wide range of products, providers and services we don’t cover every product, provider or service available in the market so there may be other options available to you. We also don’t recommend specific products, services or providers. If you decide to apply for a product or service through our website you will be dealing directly with the provider of that product or service and not with us. We endeavour to ensure that the information on this site is current and accurate but you should confirm any information with the product or service provider and read the relevant Product Disclosure Statement (PDS) and Target Market Determination (TMD) or the information they can provide. If you are unsure you should get independent advice before you apply for any product or commit to any plan. (c) 2022.
Finder Earn and Finder’s digital asset trading is powered by Finder Wallet Pty Ltd (ABN 11 149 012 653) an AUSTRAC registered Digital Currency Exchange and reporting entity (DCE100735494-001). Finder Wallet is an arm of the Finder Group specialising in blockchain technology. Finder Wallet operates the Finder App’s digital asset trading and wallet services. Finder Earn, powered by Finder Wallet Pty Ltd, is not offered under an Australian Financial Services Licence (AFSL). Finder Wallet Pty Ltd is not a bank and does not offer banking services. Banks are covered by a Government Deposit Guarantee. Finder Wallet’s services are not covered by the Australian Government Guarantee on Deposits.
Optional, only if you want us to follow up with you.
Our goal is to create the best possible product, and your thoughts, ideas and suggestions play a major role in helping us identify opportunities to improve.
finder.com.au is one of Australia’s leading comparison websites. We compare from a wide set of banks, insurers and product issuers. We value our editorial independence and follow editorial guidelines.
finder.com.au has access to track details from the product issuers listed on our sites. Although we provide information on the products offered by a wide range of issuers, we don’t cover every available product or service.
Please note that the information published on our site should not be construed as personal advice and does not consider your personal needs and circumstances. While our site will provide you with factual information and general advice to help you make better decisions, it isn’t a substitute for professional advice. You should consider whether the products or services featured on our site are appropriate for your needs. If you’re unsure about anything, seek professional advice before you apply for any product or commit to any plan.
Products marked as ‘Promoted’ or ‘Advertisement’ are prominently displayed either as a result of a commercial advertising arrangement or to highlight a particular product, provider or feature. Finder may receive remuneration from the Provider if you click on the related link, purchase or enquire about the product. Finder’s decision to show a ‘promoted’ product is neither a recommendation that the product is appropriate for you nor an indication that the product is the best in its category. We encourage you to use the tools and information we provide to compare your options.
Where our site links to particular products or displays ‘Go to site’ buttons, we may receive a commission, referral fee or payment when you click on those buttons or apply for a product. You can learn more about how we make money here.
When products are grouped in a table or list, the order in which they are initially sorted may be influenced by a range of factors including price, fees and discounts; commercial partnerships; product features; and brand popularity. We provide tools so you can sort and filter these lists to highlight features that matter to you.
We try to take an open and transparent approach and provide a broad-based comparison service. However, you should be aware that while we are an independently owned service, our comparison service does not include all providers or all products available in the market.
Some product issuers may provide products or offer services through multiple brands, associated companies or different labelling arrangements. This can make it difficult for consumers to compare alternatives or identify the companies behind the products. However, we aim to provide information to enable consumers to understand these issues.
Providing or obtaining an estimated insurance quote through us does not guarantee you can get the insurance. Acceptance by insurance companies is based on things like occupation, health and lifestyle. By providing you with the ability to apply for a credit card or loan, we are not guaranteeing that your application will be approved. Your application for credit products is subject to the Provider’s terms and conditions as well as their application and lending criteria.