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Investors are piling into alternative investments… What is the attraction?

by , 02 July 2015

Alternative investments are seeing a boom. They're one of the fastest growing asset classes at the moment.

So what are alternative investments? And what are the pros and cons of investing in them?

Read on to find out…

What are alternative investments?

Broadly speaking, alternative investments are assets you can invest in that aren’t shares, bonds or cash.

This means there’s a broad array of alternative investments, including:

  • Forex;
  • Commodities;
  • Property;
  • Cars;
  • Derivatives;
  • Bitcoin;
  • Art;
  • Wine;
  • Collectible coins; and
  • Comic books.

High growth in alternative investments

According to US advisory firm, Money Management Institution, they noted a 19% rise in the money going into alternative investments in 2014.

UK research firm, Pregin, puts this figure at 11% for last year. This would make is a $7 trillion industry, Tara Clarke in Money Morning US explains.

Whichever growth figure you look at, alternative investments have attracted a lot more investment.

The risks and rewards of alternative investments

Alternative investments offer you a way to diversify your portfolio and reduce risk. This is especially important in times of financial and economic crisis.

And alternatives investments have other advantages too:

  • They offer other opportunities when stocks are overvalued.
  • As Keith Fitz-Gerald explains in Money Morning US, alternative investments are less prone to volatility despite the fact they seem riskier than traditional assets.
  • If you’re a collector, you can use your passion to make money.

But alternative investments come with risks. All alternative investments will range in investment grade. You want to buy the best you can afford. This increases your chance of selling at profit at a later stage.

Other risks include:

  • You may incur costs such as storage and insurance. You’re paying out while your investment doesn’t pay you anything for holding.
  • The alternative investment market is a lot more illiquid than shares, bonds and cash. You may have to wait a while before you can sell for the price you want.

So there you have it. The attraction of alternative investments.

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Investors are piling into alternative investments… What is the attraction?
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