When most people think about investing, they often think about traditional means such as stocks, bonds and cash – but that is only a small part of the bigger picture.
There are many other forms of investments that can be used to generate and maintain wealth, known as alternative investments.
According to Harvard Business School, alternative investments are “are asset classes that aren’t stocks, bonds, or cash”.
They are not easily sold or converted into cash, but can help to diversify people’s portfolios.
Alternative investments also have a low correlation to standard asset classes, meaning they aren’t necessarily affected by market conditions change.
Here are five types of alternative investments that you can think of as investment opportunities.
1. Private Equity
Private Equity refers to investment into companies not yet listed on the stock exchange.
Money is polled from a bunch of investors in order to obtain millions or even billions of dollars to acquire stakes in these companies.
As an investor in a private equity firm, you will also receive a return on your investments when the investment is good.
There are three main subsections of private equity namely venture capital, growth capital and buyouts.
Venture capital is associated with start up companies who have a high earning potential or are expanding. Through venture capital firms, substantial funds are given to companies seeking assistance to grow or save their business.
Growth capital on the other hand provides mature companies with assistance to foster further growth or expansion. And buyouts are when a firm buys all the stakes in a company, taking over its management.
Private equity companies often provide more than capital to the firms they invest in; they also provide benefits like industry expertise, talent sourcing assistance, and mentorship to founders.
2. Private dept
Contrary to popular belief, banks are not the only institutions that can grant loans.
Through private debt, companies, whether public or private, can borrow loans from non-bank investors to finance growth.
The companies that issue the capital are called private debt funds, and they typically make money in two ways: through interest payments and the repayment of the initial loan.
So, if you have enough capital, you can create your own private debt firm and offer loans to companies, receiving interest as well as the money borrowed.
3. Real Estate
Purchasing land or a house is another form of alternative investment that can be used to generate financial growth.
Real estate, in recent times, has become a popular form of alternative investment with persons buying and renting houses or turning them into Airbnbs.
Like many other forms of investments, real estate is a long-term investment as returns are not seen immediately.
But, if managed and maintained properly, that can be a great option for passive income.
There are various items on this planet that people place great value on.
These often include coins, wine, art pieces, stamps, vintage cars and mint-condition toys.
Investing in collectibles means purchasing these items and maintaining their physical appearance and quality. This is done with the hope that the value of these assets will increase over the years and you will be able to resell at a profit.
However, it is a risky task that requires experience in the field.
Before purchasing any collectibles, do extensive research on the product to ensure that its value will increase with time.
Commodities are are also real assets and mostly natural resources, such as agricultural products, oil, natural gas, and precious and industrial metals.
They have been traded for thousands of years and are considered a hedge against inflation.
This means they are not sensitive to public equity markets. The value of commodities also rises and falls on a supply and demand basis.
Thus, the higher the demand, the higher the price and profit.