5000 years ago, in ancient Egypt, pharaohs devoted considerable time and resources towards investing into the afterlife. Elaborate tombs, gold, art… even food was set aside to carry the monarch into the next world. And while the trend remains the same, the mediums of investment, and the timing of its fruition have changed a little.
The traditional avenues of investments over the last century or so have mainly been stocks, bonds, mutual funds, gold and savings accounts, but today, there are plenty of alternative investment vehicles that offer higher yields and reduce risk, from mutual funds to crypto to government bonds. However, the pharoahs of old did give us some investment tips that have stood the test of time.
Stocks and mutual funds are the most traditional and well-known methods of growing your money, and the surmise is when you buy stocks, you become a partial owner of a company and have a share of its profits or losses. This is a commonly utilized investment avenue; with good reason, it is reliable and has a high return potential. Typically, savings accounts enabled one to build up a nest egg through the interest rates offered. More recently, mutual funds have proven to be a good option for those who are looking for high yields, but it is not for the faint of heart, as they have been known to be risky and prone to market fluctuations.
Alternative investments refer to a few disparate investment groups that differ from the traditional vehicles. Before going ahead it must be understood that alternative investments are not always uncommon or novel. For example, real estate and commodities, two of the oldest forms of investments, are considered alternatives.
Many people view alternatives as higher-risk, higher-return investments, but this may not always be the case. Alternatives can also provide portfolio diversification and potential risk reduction. The appeal of alternative investments lies in their potential to generate high returns while minimizing downside risk. Some common alternative investments include hedge funds, venture capitalism, private equity, real estate, commodities, and derivatives.
For example, hedge funds often use short selling to leverage to achieve their goals. While this can lead to large gains in favourable market conditions, it can also amplify losses in down markets. As such, investors must carefully consider their appetite for risk before investing in alternatives.
Alternative investments are often illiquid, meaning they cannot be easily sold or converted into cash. They also tend to have high fees and require a minimum investment amount. For these reasons, alternative investments are best suited for experienced investors with a long-term time horizon who are comfortable with illiquidity and volatile markets.
As the world economy continues to experience uncertainty and volatility, more and more investors are looking for investment vehicles that influence a difference in their financial outcomes.
There are many benefits of investing in alternatives. For one, they offer the potential for higher returns with absolute return strategies that can deliver positive returns in all market conditions. Some alternative investments can provide downside protection and act as a hedge against inflation. These investments often offer investors access to global markets, asset classes, and strategies otherwise unavailable through traditional investments. Last, but not the least, alternative investments offer attractive tax advantages due to their unique structure and the fact that many of them are not correlated with other asset classes.
Overall, alternative investments can provide a valuable addition to any portfolio, regardless of the differing goals and objectives of investors. With so many benefits, it’s no wonder that alternative investments are gaining in popularity all the time.
There are numerous alternative investments, each with its own set of benefits and risks. Here are a few of the most popular:
Real Estate: This one is self-explanatory and has been around from time immemorial. It is one of the more stable investments, offering low risk and high returns, especially over time. Additionally, real estate can be used as collateral for a loan. Real estate is also viewed as a hedge against inflation due to its relative affordability. The only major drawback to investing in real estate is the large upfront capital necessary to purchase the asset. Also, property ownership does not come without its challenges. This can be tackled by hiring a property management company to handle the many responsibilities. Often investment firms will advise you on potential global investment opportunities, which offers interesting possibilities for travel or a second passport.
Peer-to-peer lending: Peer-to-peer lending allows investors to lend money to individuals for predetermined periods, earning them interest through the loan they process. This investment offers a better return than traditional loans, as lenders often make between 9% and 20% annually on their investment. As peer-to-peer lending is an asset-backed loan, it also comes with added liquidity. The biggest drawback to this investment is the need for more regulation, as you might end up lending money to not-so-reliable individuals or parties. Or at the very worst end up with a loan shark on your tail.
Equity Crowdfunding: If starting up a new venture seems overwhelming, you may plan on owning a part of someone else’s business. Startup companies in need of funds generally offer their shares to equity crowdfunding websites, such as CircleUp, AngelList, Wefunder, SeedInvest, etc. When you become a part of a crowdfunding site, you will be rewarded (and vice versa). Many well-known companies, such as Apple, Amazon, and Tesla, got their start through crowdfunding. This is an excellent way to invest limited amounts in emerging technologies (especially) without taking on the risk associated with investing large sums in a start-up.
Cryptocurrency: Cryptocurrency has become a popular investment vehicle in recent years, as the value of digital assets has soared. In fact, cryptocurrency has outperformed all traditional investment vehicles over the past three years. Cryptocurrency is a high-risk investment, so it is not recommended for those very new to investing. However, this investment form is an excellent platform for more experienced investors to make high returns without taking on significant risks to their already diversified portfolio.
Commodities: Commodity investing involves buying and selling raw materials such as gold, silver, oil, corn, or coffee. These investments can be volatile, but they offer the potential for significant profits if prices move in the right direction. The cost of commodities is highly correlated to the health of the world economy, making it an excellent indicator of an economic downturn. Commodities have a high rate of return, around 15%, and are generally not tied to one specific company (making it an excellent diversification tool). The only drawback to commodities is that they may not be as easy to liquidate as other investments.
Stamps, coins, art, cars: Investments in these categories are termed ‘collectibles’: a range of items that include stamps, coins, fine art, vintage cars, rare wines, baseball cards, etc. When you invest in collectibles, you purchase and maintain commodities that could see an appreciation in value over time. With adventure comes a tinge of risk. These investments can also pose a risk due to the high acquisition costs, lack of potential for dividends or other income until a sale happens, and there’s always the potential destruction of assets. This one is, again, for the experts who know how to optimize their ROI.
Diversification is key – This means investing in a variety of different asset types, industries, and even geographical regions. Investing in different sectors and companies makes you less likely to be negatively impacted if one sector or company goes under. This can be accomplished by splitting your funds across the various investment vehicles.
Create a plan and then stick to it – It is important to remain disciplined during market downturns and not let emotions cloud your judgment. Many people enter the world of investing with grandiose hopes of becoming overnight millionaires. While it’s certainly possible to make a lot of money through investing, it’s important to temper your expectations and understand that there will be ups and downs along the way.
Focus on long-term results rather than short-term gains – Trying to time the market or get in and out of trades quickly can be dangerous and often leads to losses. Instead, focus on finding quality investments that are likely to appreciate over time. With Long-term investments, you are less likely to make rash decisions based on short-term gains and losses. Investing in the long term allows you to take advantage of market dips and be less concerned with short-term fluctuations.
Stay up-to-date on market conditions – Continuous education is the best way to do this. Read financial news and trends, attend investment seminars, and stay in touch with financial advisors. By keeping up with the latest trends, you can make more informed decisions about your finances.
By now you should have a better understanding of the different types of investment vehicles available to you. Each has its own advantages and disadvantages, so choosing the one that best fits your needs is important. At the end of the day what works for you can only work for you. No matter which investment vehicle you choose, remember to do your research, and invest wisely. And remember what the Pharoahs did… they planned for the long term…