NEWS AFFAIRS 7 : WHERE EVERY STORY HAS IT'S AFFAIR!
Last updated on July 26th, 2024 at 06:20 am
Table of Contents
Introduction to Alternative Investments :
Imagine that you are a high net worth individual , What would you do if you have money to invest , where would you like to invest ?
Normally, any person will consider to invest in things like stocks (which are shares of ownership in a company), bonds (which are like loans to companies or governments), or just keeping it as cash.
But there are other options as well where one can invest and these options are not so common. These are called alternative investments. They can be like:
1. Private equity or venture capital: This means not investing in a public company which is not listed on stock market yet. A person might invest in a startup in exchange of some share ownership.
2. Hedge funds: Hedge funds is a little complicated topic , these are investing funds uses complex and risky techniques to make money.These funds are managed by professionals who use special strategies to make profits. But these funds can give very high returns
3. Managed futures: This is when you invest in contracts for things like commodities (like gold or oil) or financial instruments (like currencies) that are managed by professionals.
4. Art and antiques: Some people invest in valuable artwork or old objects with the hope that their value will increase over time.
5. Commodities: This means investing in things like gold, oil, or crops. These are physical necessary things that people always need, so there are possibilities that their prices will rise over time.
6. Derivatives contracts: These are financial contracts whose value is based on the value of something else, like stocks or bonds.
7. Real estate: This means buying property like houses, apartments, or land, with the idea that it will increase in value over time.
So, in simple terms, alternative investments are just different ways to invest your money beyond the usual options like stocks and bonds. They can be riskier but has high chance for higher returns.
What are alternative investments?
Investments done in things such as real estate, commodities (like gold or oil), hedge funds, private equity, venture capital, collectibles (like art or wine), cryptocurrencies, and more is term as Alternative investment.
In alternative investment people don’t look forward to invest money in companies bond, shares or keeping money as cash. To make money they look for alternative method or different ways to potentially grow wealth compared to more traditional investments like stocks and bonds.
Examples of alternative investments
Things like investing in companies before they go public, special types of investment funds, buying properties, goods like gold or oil, and real and physical stuff like art or collectibles.
Is alternative investments rules are strict ?
These investments usually have fewer strict rules from the government side regarding their work and functioning, but they’re not easy to sell quickly, if you ever get in situation where you need the money.
Who can invest in Alternative Investments?
Majorly, people with very strong financial stability (High net Worth Individuals ) would like to invest in these kinds of investments. But now people with a decent financial stability can also take a risk to invest in these kinds of investment through special investment funds.
What are common types of alternative investments ?
Some common types of alternative investments are buying property, investing in things like gold or cryptocurrency, or collecting valuable items like art or rare coins.
Who typically invests in alternative investments ?
Big organizations like banks or wealthy individuals often invest in these because they’re more complicated, riskier, and have fewer rules. They’re not as regulated as regular investments like stocks or bonds.
Why are they less known?
Alternative Investment in usually done by High Net Worth Individuals ,cause these investments requires a lot of money to start, and if a person hire someone professional to do their investment , then their charges are lot higher than other professionals. Plus, they can’t advertise their performance as freely.
How do costs compare?
Alternative investments are expensive to get started. But once you’ve paid those initial costs, the fees you pay for buying and selling that thing are usually lower. This is because not many people are buying and selling it all the time, like they do with other things.
So basically, alternative investments are usually for rich personality or big organizations because they have financial power to take big risk, then a regular investor.
What’s the deal with liquidity( How easily something can be sold )?
Alternative investments are harder to sell as compared to regular stuff like stocks. For example, it is not easy to sell a painting, it requires time to search for people who is interested in such things, and getting right money is the biggest point here.
so It’s not as easy as selling shares of a big company like google because there are fewer people interested in buying it.
Why is it tough to figure out their value?
These investments are rare and unique, making it tricky to know how much they’re worth. For example, if someone wants to sell a very rare jacket or instrument, then it’s hard to evaluate their actually worth because there are only a few pieces left in the world.
So, alternative investments are not as easy to sell as regular investments, and figuring out how much they’re worth can is not so easy because they’re so rare and special.
Different types of Alternative Investments :
| Type of Alternative Investment | Description | Example |
| Real Estate | Investing in physical properties such as houses, apartments, or commercial buildings. It can also include investing in real estate crowdfunding platforms, REITs, or real estate mutual funds. | Buying a rental property, investing in a real estate crowdfunding project, or purchasing shares in a REIT. |
| Commodities | Investing in raw materials such as gold, silver, oil, or agricultural products. Commodities have real-world uses and often have constant demand. | Buying gold bars, investing in oil futures, or purchasing shares in an agricultural Exchange traded fund (ETF). |
| Art and Collectibles | Investing in valuable art, sports memorabilia, or items with historical significance. These items may appreciate in value over time. | Purchasing a painting by a famous artist, collecting rare coins, or buying autographed sports memorabilia. |
| Cryptocurrencies | Investing in digital currencies like Bitcoin, Ethereum, or other cryptocurrencies. These currencies operate independently of traditional banking systems. | Buying Bitcoin, investing in an Initial Coin Offering (ICO), or staking Ethereum for passive income. |
| Venture Capital/Private Equity | Investing in private companies or startups in exchange for ownership stakes. These investments are typically made in early-stage companies with high growth potential. | Investing in a tech startup in exchange for equity, participating in a venture capital fund, or providing funding to a small business. |
| Peer-to-Peer Lending | Making loans to individuals or businesses through online platforms. Investors earn interest on the loans they provide. | Lending money to individuals for personal loans, funding small business loans, or participating in peer-to-peer lending platforms like LendingClub or Prosper. |
Advantages and Disadvantages of Alternative Investments
Pros of Alternative Investments:
| Pros |
| May offer diversity benefits |
| Often have higher return potential than traditional investments |
| May offer protection against inflation |
| May offer investors more specialty investment options |
Cons of Alternative Investments:
| Cons |
| Often associated with higher fees and transaction costs |
| Often have higher risk than traditional investments |
| Often lack transparency and may have reduced regulation |
| May not be right for novice investors due to their complexity |
| May be less liquid and more difficult to sell in a hurry |
| May be illiquid |
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