Alternative investments and their benefits
The investment portfolio of an investor usually contains conventional forms of investments like bonds and stocks. Both offer an opportunity to make a rock solid long-term investment. There are, however, some other forms of alternative investment that will enhance your portfolio and offer an opportunity to decrease the risks caused by unpredictable fluctuations in the market.
Alternative investments comprise of hedge funds, commodities, mutual funds, gold, art and precious metals etc. Investing in these items will enable you to diversify your investments and you will also be able to reap the rewards when the prices of these items go up.
Alternative investments are those assets that do not move in conjunction with fixed income and equity markets. These assets have their own drivers and follow their own cycles. They have a very low correlation with usual assets. This is why they are used for diversification of a traditional portfolio so that its volatility is reduced. When equity and bonds begin to perform poorly, investor seek to divert their money towards alternative investment options.
Historically, alternative investments used to be the forte of few rich individuals and institutional investors. Presently, however, general public is has also become aware of the benefits afforded by alternative investments. There are a wide variety of alternative investments options available all of which are able to complement a great variety of investment activities. This should, however, be kept in mind that they only act as a supportive option of investment that butters up the actual portfolio. In no way alternative investments can be used as the actual investment portfolio.
Most investors opt for alternative investment options because they are of the opinion that these will bring them higher returns. This must be note, however, that higher returns have higher risks associated with them.
Alternative investments are comparatively less liquid. Unlike bonds and stock, these cannot be sold readily. Some of these investments need to be held for an extended period of time. The taxation and other associated costs and consequences of holding alternative investment items should also be kept in mind.
There are several alternative investment options available for an investor. Sometimes it becomes very difficult for an investor to ascertain which alternative investment item may be suitable for him.
Only a small part of your entire portfolio should comprise of either gold or silver, or other precious metals. This will serve as a shock absorber in case there is a fluctuation in the traditional investment portfolio since these objects do not fluctuate in conjunction with conventional investment items.
Most people keep gold as a cushion against fluctuations in currency and inflation. When the currency weakens, the price of gold tends to rise. This is why investors convert their money in gold when there is an economic slowdown.
Apart from gold and silver, there are many other items such as art, antiques and collectibles etc. All of these serve to diverse and nullify the effects of market swings.