After putting together an emergency fund that can serve as a safety net in times of trouble, many young people these days make it a point to start investing to secure their financial future. It’s a very sensible choice, given the current economic climate and how regular savings products can no longer keep up with rising inflation rates.
Indeed, hedging your bets on assets that have the potential to grow in value over time is a smart way of ensuring that you’ll be able to maintain your worth as you become older. This move will also allow you to maximize the benefits afforded by your hard work and financial decisions.
Traditional and Alternative Assets
At this point in their financial journey, many people consider putting their funds into assets that serve as a conventional vehicle for financial stability. These include stocks, bonds, and cash, to name a few.
Nowadays, however, the vehicles for growing one’s money extend beyond these three types of assets. If you’re putting your money on private equity, venture capital, managed futures, and collectibles like arts and designer fashion products, then you’re using an alternative investment.
Cryptocurrencies like Monero, which you can keep in a dedicated XMR wallet, are also considered alternative investments. These investment vehicles are not traded in public markets and are oftentimes unregulated by the SEC. Traditionally, they were also reserved for people with high net worth, as those who want to dabble in these assets are sometimes required by the SEC to be accredited investors.
Are Alternative Investments Worth It?
Should you be putting your money on alternative investments instead of more traditional avenues for growing your money? The answer to this question depends on your financial objectives and the risks that you’re willing to take to meet said objectives, among other factors. In order to make the best decision possible, you need to understand the pros and cons of choosing to invest in non-traditional investment vehicles.
The Pros of Alternative Investments
Here are some of the reasons why you may want to invest in alternative assets:
A Means to Further Diversify Your Stock Portfolio
Getting into alternative investments is a good idea if you already have traditional assets in your portfolio and are looking to further diversify your stock. Perhaps your portfolio might be too safe, and you think you’re capable of handling a bit more risk. If that’s the case, you have the option of dedicating a portion of your investment funds to high-risk and high-return assets.
Low Correlation with Traditional Investment Vehicles
In line with the above, many alternative investments have a low correlation with traditional investment channels. This means that even if the stock market moves unfavorably, your alternative asset might not even be affected by the said movement.
Can Be an Effective Means of Hedging Inflation
If preserving your money’s value is your top priority, you’ll be glad to know that there are certain alternative investments, like gold and real estate, that can hedge against the immediate effects of inflation.
Lower Exposure to Market Volatility
The number of investors dabbling in certain types of alternative assets can be quite low due to the high level of initial investment that’s required of them. This means that these kinds of assets are less exposed to the broad market and can, in turn, be shielded from volatility.
The Potential of Gaining Higher Returns
There are alternative investments that can provide you with the chance of earning higher gains, which can help you reach your financial goals much faster.
Early Involvement in a Growing Market
Alternative assets are still emerging. For example, there are still cryptocurrencies that are being launched to this date. Getting into the scene and investing early in assets with a high potential for growth can help you buy low now and sell high down the road.
The Cons of Alternative Investments
Despite the potential benefits listed above, there are a few caveats that you should also be aware of before you dip your toes into alternative assets. Here are some of them:
High Level of Initial Investment
Some types of alternative assets can be quite pricy from the get-go, limiting the number of people who can grow their money using the said investment channel.
Lack of Regulation and Protection
In many places, regulators and lawmakers can hardly keep up with the emerging technologies that support alternative investments. This means that the people who invest in these assets will likely be on their own in case they fall victim to scams or criminal activities.
Low Liquidity and Difficulty in Placing Value
Finally, because many alternative investments are not traded publicly, it can be difficult to challenge their value or buy and sell them.
The bottom line is that you need to take a good look at your options to see if there’s an alternative investment vehicle that checks all the boxes for you. Since there are plenty of alternative asset options out there, there’s a good chance you’ll find one that will help you grow your money and meet your financial goals. Just make sure to do your research first before you make a final decision, and you should be able to weather most financial challenges down the line.