Alternative investments had already started to gain importance in financial circles worldwide before the financial crisis of 2008. Experts and analysts also forecast a steadily increasing growth rate in these areas for the future.
Considering alternative investments is worthwhile
What are alternative investments?
What does this exciting term actually mean? An "alternative investment" is any investment in non-conventional investment products. "Conventional" can be defined as shares and listed securities, investment funds, bonds and other securities, while "alternative" refers to a wide range of innovative, ever-expanding investment products.
At the top of the list are hedge funds that invest in conservative asset classes but pursue an unconventional investment strategy. Furthermore, private equity, which means the private acquisition of company shares or real estate investment funds. Alternatively, investments are also made in infrastructure projects. Here, investors can also choose to invest in social and sustainable projects. Derivatives also count as alternative investments, as do commodities - first and foremost precious metals, of course - agricultural products and standardised goods.
Alternatively, investors can also choose assets that they can relate to personally and that allow them to engage with areas of interest. This includes, for example, fine wines, antiques and works of art or patents.
What sets alternative investments apart
What fundamentally distinguishes alternative investments from traditional investments is their profile - in terms of return and risk. Their so-called performance is rather complex, as is their risk measurement. As they are often not directly tradable and their value is therefore more difficult to determine, clever strategy and a long-term approach are more likely to guarantee success due to changeable market conditions.
So what are the key factors that make it worth considering alternative investment products? A decisive factor is the zero interest rate policy, which has sidelined the formerly solid credit rating of government bonds. This pressure is opening up new forms of investment with more lucrative returns. Likewise, events of global scope cause fluctuations in regional markets, which create uncertainty among investors. A pandemic or the Brexit can be mentioned here as examples.
The ever-increasing globalisation and interconnectedness of the markets, for example, is causing investors to want to become more independent of these fluctuations. The key word here is diversification. This allows risks to be minimised right from the start. Compensating for losses is easier due to different weightings of the individual stocks in the investment portfolio. This is where alternative investments really come into their own.
Commercial and residential real estate as a profitable asset
The real estate market has proven to be a safe and profitable form of investment over a long period of time. The real value of houses and land is stable and independent of the stock market. Property owners enjoy numerous advantages, as they benefit from long-term appreciation, ongoing income from rentals including rent increases and tax depreciation options. Real estate is an excellent way to provide for old age.
The current low interest rate policy makes financing possible on a novel scale. Another trend in the real estate sector are fractional investment models. It gives private investors and small investors the opportunity to engage in alternative investment. This can be done through peer-to-peer, or p2p, platforms that act as brokers of private-to-private mortgage-backed loans, with extensive risk-assessment strategies to handle all the management to maximise returns.
The potential of real estate investments is undisputed. As with all investment undertakings, the following applies here as well: Do not proceed without a comprehensive property analysis and thorough assessment of all parameters, preferably by trusted real estate and financing professionals.