Alternative Investment
Candlefocus EditorGenerally speaking, alternative investments are considered to be any type of investment that does not generate its return by achieving price appreciation in the value of the asset or through income generated by the asset, such as dividends paid on stocks. The investments can range from traditional investments such as real estate, commodities, or collectibles to less conventional options, such as hedge funds or private equity investments.
Alternative investments tend to have a higher level of risk and higher expected returns compared to traditional investments. This is in part due to the higher levels of market volatility, liquidity constraints, and costs associated with these investments. These features are attractive to some investors who are interested in taking on higher risks in exchange for the potential for higher returns.
Many alternative investments allow for complete control over one’s investment. With many alternative investments you can buy or sell your investments at any time, on your own time, allowing for complete customization of the investment strategy and in some cases, enabling investors to take advantage of short-term opportunities. Investors looking to diversify their portfolios with investments that can generate returns independent of the stock and bond markets may find alternative investments to be beneficial.
One of the downsides of alternative investments is the illiquid nature of some of these investments. This makes it difficult to get out of an investment when the desired return has been made, as it may not be possible to quickly and effectively find a buyer for the asset.
In addition, alternative investments are often more expensive than traditional investments and may require more research to understand the true risks that they entail. It’s important to always do your research when considering any investment, but alternative investments often require a more technical understanding to make sure that you’re making the right decision.
Overall, alternative investments provide a potential for higher returns to those who are willing to take on the additional risks associated with them. However, these riskier investments may not be suitable for all investors and it’s important to understand the nuances of these investments before making a decision.