Investing is the process of putting money into a financial product with the expectation of earning a profit. This is typically done for retirement, though there are many high-risk investments people choose to get rich quickly. Except for safe investments such as US Treasury Bills and CDs, there is always the possibility of losing money with investment, though it can be lessened through the use of certain investment tools.
When you think of investing, do you automatically think of stocks and bonds? If so, you aren’t alone. However, there are dozens of other ways to invest your money. Today, we’re going to cover some of the best alternative investments. Alternative investments are just like the more common investments; only they’re less mainstream.
What are Alternative Investments?
While the stock market has been rebounding since the financial crisis, equity investments are still much riskier than alternatives. As a result, many investors are turning away from stocks and bonds in favor of alternative investments. These may include investing in alternative energy, acquiring ownership in a racehorse, or buying rare musical instruments. While it is usually best to diversify your portfolio, some investors are choosing to buy into alternative investments exclusively.
Alternative investments such as hedge funds, private equity, and commodities can be a smart way to diversify your portfolio. But they are not without risk, and it’s important to understand what they are, how they work, and how they can help (or hurt) your finances.
With that, here are the different types of alternative investments:
- Real Estate – Real estate is a type of alternative investment, meaning that it is not part of the typical investment mix that most investors consider, such as stocks, bonds, and cash. Real estate can be a great investment because the value of property tends to go up over time, and the income it generates can be a steady source of revenue.
- Peer-To-Peer Lending – Peer-to-Peer lending (P2P lending) is a type of alternative investment that uses the Internet to match lenders with borrowers to make loans. An investor becomes a lender by purchasing a small portion of a larger loan. The loans are paid back with interest, and the investor earns a return.
- Owning a business – Owning your own business is a very viable alternative investment. The advantages to the investor are that most businesses are extremely undervalued, the tax benefits are tremendous, and the opportunities for capital gain are far greater than the stock market.
- Gold – Gold is a precious metal with a long history of value, so it’s not surprising that it’s being seen as an alternative option to traditional investments. Right now, there’s renewed interest in gold, with the metal hitting its highest price in 20 years. However, for the average person, investing in gold can be overwhelming. The metal’s price is based on supply and demand. This means that its price is connected to things like the strength of the economy, inflation, and central banks.
Investing in a type of investment can be a smart decision. While you may not always see your investment go up in value, it can be a great long-term investment to make. If you don’t have a lot of money to invest, you don’t have to put in a lot of money. You can invest as little as $0.01 and still get a percentage of the profits.
Before You Make an Investment
Investing takes a lot of homework and not just in the form of research. If you want your investment portfolio to do well, you need to choose wisely among a dizzying array of investment options. There are two basic types of investments: options and equity. An investment in options gives you the right, but not the obligation, to buy or sell a security at a specific price by a certain date. Equity investments are shares of a company that you can buy and sell. Once you have decided what type of investment is right for you, you need to pick the specific investment you would like.
When you are looking for an investment, it’s easy to get overwhelmed by the sheer number of options available. Is a 401(k) a good investment? What about a Roth IRA? Are bonds a good investment? What about mutual funds? Should I invest in stocks? Should I invest in a mutual fund or individual stocks? These are all very common and good questions, but they can all be answered by one overall philosophy: “Don’t invest in what you don’t understand.”