While alternative assets are not a new concept, they are boosting in popularity now more than ever. Economic and structural factors encourage investors to seek similar opportunities. Soon enough, all investment schemes might include alternative investments as a constant.
While these investment opportunities increase in popularity, both mainstream and alternative asset managers have a new opportunity to raise their passive investment capital. Alternative markets, luckily, don’t seem to stop growing soon, which opens new investment gates every day. More and more investment enthusiasts turn their attention to property, infrastructure, hedge funds and private equity to search for better rates of return. High-equity assets seem to become an investment rule in the near future. But let’s see why these investment opportunities grow so forcefully in investors’ preferences.
What Are Alternative Investments?
In order to understand this concept, is important to understand how investments are categorized. Traditionally, investments have been categorized in what we all know as asset classes. These are groups of assets that share the same risks and return characteristics. They also behave similarly in response to market and economy events. An alternative investment is an asset class that is completely different from stock, bonds and cash. Some are well-known and widely used, others are completely obscure to the large audience.
The main alternative investment opportunities fall between stocks and bonds. These usually include real estate investment trusts, hedge funds, private equity, venture capital, REITs, trusts deeds, real assets like coins, commodities, etc.
Now that we have a full description of alternative investments, let’s see what benefits they bring to the investor.
#1. They Add Diversity to Investors’ Portfolios
Having a diverse investment portfolio usually enhances portfolio security. Multiple types of investments are due to reduce investment risks, as the experts at Investopedia claim. Portfolio diversification aims to maximize returns and minimize risks by investing in assets that would react differently to the same market events.
For many investors, diversification is also the most important component of reaching better financial returns, while reducing investment risks to a minimum.
Foreign alternative investment firms put increasing efforts lately in helping investors to diversify their portfolios with alternative investments, in markets all around the world. The experts at XIO Group investments claim that these firms’ main efforts revolve around finding markets with a high potential and helping businesses and investors invest in those.
According to them, alternative investment funds, do try to help business with a high potential to minimize their investment risks, while boosting their returns with various alternative asset investments. Similar investment funds and groups help businesses find the perfect market and investment opportunity, guide them and help them reach their diversification goals. Their entire work is based on study and ethical principles and follows a strong strategic investment pattern. By adding assets with little correlation to each other, the investor increases their chances to survive and remain profitable when investment markets start to decline. Surprisingly enough, traditional assets are the most volatile and adding alternative assets to investment portfolios usually stabilizes those.
#2. Flexibility
Alternative investments allow the investor to find the most attractive investment opportunities, regardless of their location or type. Having asset class and geographical flexibility boosts the opportunities. Looking beyond the traditional asset classes and the neighboring geographical areas, investors have now the opportunity to explore the wonders of growing markets all around the world, in one of the most profitable possible ways.
Not being constrained by benchmarks, investors are now offered the possibility to secure their investments all around the world, where the opportunity arises.
#3. Diminish Portfolio Volatility
An undiversified portfolio is incredibly volatile. We described abuse why it is necessary to have different types of assets in a portfolio. Adding alternative investment with no correlation and high returns reduces significantly portfolio volatility. It also helps reduce the risks at which the investor is exposed in face of market fluctuations and other unfortunate market and economic events.
After all, extreme market fluctuations are driven by human emotions, mainly fear. During times of financial crisis, many investors notice how they holdings decline. This decline is driven by investors getting scared and selling all their assets at the worst possible time.
When a portfolio is diverse enough, the volatility levels are significantly lower, which makes it more stable.
#4. They Explore Opportunities That Are Not Common in Public Markets
Being able to invest in asset classes that are untraditional and have different market characteristics is certainly one of the biggest benefits offered by alternative investment opportunities. Certain commodities, for instance, or collectables are not usually under the same market rules as the public market, which makes them more stable and profitable.
Private market opportunities are proven to have a higher growth than public ones do. This helps investor’s portfolio return rates skyrocket, at some points.
#5. They Enhance Portfolio Returns
Getting higher into the private investment market is not the only reason why these investment opportunities are on a continuous peak in markets all around the world. Alternative investments can also peak your portfolio’s return and turn the investor into a more successful one. The alternative investment sector only attracts the best-trained and knowledgeable investors. Their structure allows those successful investors and managers to make more money than the public market allows. As superficial as it might sound, only the best investors seem to invest in such asset classes.
While the short-term return rates of alternative investments are low, the long-term returns are significantly higher as compared to those of traditional asset classes. Some alternative investment classes are indeed risky, but under the right guidance of an investment fund or consultancy agency, top investors can always be sure that they’ll benefit from the highest rates of return on their alternative asset classes.
