Five Reasons For Alternative Investments. Last ten years, alternative investments become more crucial and market share of alternative investments enlarged. For this reason, we will give reasons for alternative investments. But first;
What are alternative investments?
The term alternative investments refer to investments in non-traditional investment products (stocks, bonds, fixed income securities, mutual funds and other listed securities). So they are not an asset class per se, but an umbrella term for innovative products that stand out from traditional investment products.
They differ from other asset classes in terms of their return and risk profile. They offer an above-average return potential; for this, performance and risk measurement are complex. Often the products are also not tradable. This means that an investor cannot merely react to changed conditions. Alternative investments essentially cover the following areas:
Hedge Funds: Investment funds that invest in traditional asset classes but pursue complex, non-traditional investment strategies
Private Equity: Private equity capital, which describes the non-public, direct acquisition of company shares
Infrastructure Investments: for example in renewable energies, transport and traffic infrastructure, public buildings such as hospitals, prisons, educational and cultural institutions
Raw Materials Or Commodities: Such as precious metals (e.g. gold), industrial metals, crude oil, natural gas or agricultural raw materials
Managed Futures / Ctas: Commodity Trading Advisors, a state-regulated name in the USA for asset managers who invest exclusively in futures market products (derivatives)
Real Estate: Acquisition of real estate to generate a return – by direct investment or through specialized real estate funds, which in turn invest in real estate or shares of real estate companies (REITs, Real Estate Investment Trusts)
What are the reasons for alternative investments?
There are currently good reasons for the triumphant advance of alternative investments. Why you shouldn’t ignore innovative investment strategies either:
1 | Not In The Mood For Low-Interest Rates: Financial Repression
The zero interest rate policy is still pushing the yields of government bonds with solid credit ratings into negative territory. However, with negative returns, bonds no longer fulfil their traditional role as an income investment. That is why more investors are looking for extraordinary income objects and sources. Alternative investments come into focus.
2 | Tired Of The Constant Ups And Downs: High Volatility On The Stock Market
Political uncertainties or incidents of global significance such as Brexit or the trade dispute instigated by Donald Trump are also having an impact on share prices in this country. Fluctuating prices unsettle many investors who are on the wrong side of the curve. You are, therefore looking to alternative forms of investment in order not to be solely dependent on the risky equity investment.
3 | Protection Against High Losses: Increased Need To Diversify
In the “good old days” you could diversify by investing in different asset classes and geographical regions. However, the global markets are now so closely interwoven that it no longer works so quickly. Alternative investments help to shield investors’ capital against fluctuations in conventional markets.
4 | Don’t Be Left Out: Alternative Investments Are Now Accessible To Everyone
Previously, the group of investors in alternative asset classes consisted only of large institutional investors; now, it is expanding to private investors. Until now, you had to be a millionaire and ideally be friends with an investment manager to invest directly in alternative investment strategies. On the one hand, these are now more and more often available in regulated, liquid and transparent vehicles. On the other side, the FinTech industry is revolutionizing the way small investors can participate, for example, with crowd investing.
5 | Setting A Good Example: Crowd Investing In Real Estate
A perfect example of the growth of alternative investments can be found in the real estate market. Although real estate investment trusts (REITs) have existed for a long time, small investors have so far not been able to invest small amounts directly in real estate projects.
Recently there have been platforms for real estate crowd investing that also offer micro-investors the opportunity to diversify their portfolios through alternative investments. The modern method is called crowd investing and works in such a way that many investors come together on a platform and collectively raise the necessary capital for an investment that nobody could or wanted to provide alone. In contrast to crowdfunding, investors are rewarded with a return in crowd investing.
This opens up new and better investment opportunities for investors. At the same time, they become familiar with the crowd investing method and, on the other hand, more and more real estate companies are discovering the new, efficient source of finance for themselves.