Building a strong financial future involves putting your money to work for you. Whether your goal is long-term security or a safety net for unforeseen circumstances, consider exploring alternative investments alongside traditional assets. This guide will delve into the world of alternative investments and assets, providing insights into various options you can integrate into your investment portfolio for increased diversification.
From the familiar (precious metals) to the cutting edge (cryptocurrency), we’ll explore the seven different types of alternative investments. We’ll discuss their potential benefits and drawbacks, helping you determine if they align with your investment goals and risk tolerance.
This guide will also function as a valuable resource for beginners seeking an understanding of different types of investments. We’ll highlight options with lower entry points, such as debt investments, making them suitable for those starting their investment journey.
Ready to explore how alternative investments can enhance your portfolio? Let’s dive in!
What Are Alternative Investments?
Before you start investing in alternative assets and other investment vehicles, it’s important to know what they are. Alternative investments are assets outside the traditional categories of stocks and cash. They offer investors the opportunity to potentially achieve higher returns via portfolio diversification strategies.
However, alternative investments are often less liquid (meaning they can be harder to sell quickly) and may also involve higher risks. The key is to strike a balance between your risk appetite and investment goals.
1. Fixed Deposits
A fixed deposit is a bank deposit with a clear date of maturity. There are penalties for early withdrawals but once the account reaches maturity, you can withdraw funds without any fines. Alternatively, you can choose to leave your funds for another term. The longer you leave your money alone and the higher the amount of funds, the more interest you earn — compounding your principal as the years pass.
2. Precious Metals
Precious metals such as gold or silver are metals that are highly valuable and sought after. Gold is a classic investment that remains a popular hedge against any trouble. In general, gold and precious metals preserve wealth against rising inflation. If you’re keen to learn more about gold investing, here are five tips for you.
3. Art and Collectibles
Investors can purchase and sell fine art for a profit. Some fine art pieces may appreciate over time, earning investors a handsome sum of money. However, investors should be aware that not all art pieces in the market are authentic or may appreciate in value over time. Besides art, collectible coins are also an avenue where investors can participate. Annually in Singapore, we usher in the new year as a country with a set of specially designed coins. Investors should do their research or seek expert advice before investing in art and collectibles, to ascertain the true value of the investment as well as to ensure they are dabbling in only authentic goods.
4. Property
The value of property generally appreciates over time, making it a popular long-term investment. On top of that, renting out your property also allows for the earning of steady and passive income on the side.
However, the main disadvantage of investing in property is glaringly obvious: entry cost is high. You need a lot of money to buy property. Additionally, the property is not liquid and requires plenty of upkeeping. Furthermore, as landlords, you run the risk of dealing with destructive tenants. Or worse, no tenants – leaving you with an idle asset.
Though real estate investments can be a potentially profitable strategy, depending on the conditions of the property market, land prices may be lowered as well. All in all, the decision to purchase a property is a resource-heavy one and like any other investments, one should do their own due diligence before making any decisions.
5. Bonds
When companies or governments need funds – perhaps to expand or build infrastructure, they can choose not to borrow money from banks. An alternative is to issue bonds which are a form of debt where the corporation/government undertakes the role of the borrower. Investors who purchase those bonds are then the lender. Depending on the type, Bonds can be bought at face value, with regular interest payments made to the holder and principal paid back at the end of the tenor.
Bonds typically offer lower returns than say stocks, but that can be explained by the level of risks and price fluctuations involved as compared to the latter. In addition, similar to fixed deposits, bonds provide a stable passive income.
6. Cryptocurrency
A cryptocurrency is a digital or virtual currency designed to work as a medium of exchange. Normally, Cryptocurrency trading does not require high start-up capital and opportunities to enter the market are available 24/7. However, the value of cryptocurrencies is widely known to be volatile and unpredictable.
Similar to stocks, investors trade cryptocurrency on stock exchanges. Some methods to obtain cryptocurrency include “mining” and/or buying them from a trading platform. As the popularity of cryptocurrency rises, so does the risk of it being exploited by wrongdoers.
Important Note: When investing in alternative assets like cryptocurrency, choose reputable trading platforms with strong security measures to ensure the safety of your assets.
7. Debt Investment
Debt investment is enabled by digital platforms that connect SMEs with investors without going through a traditional financial intermediary. Funding Societies is one such platform and investors on it look to earn interest returns in exchange for participating in a crowdfund, and debt investment as an alternative investment strategy has gained significant traction in Singapore in recent years.
Starting from just S$20, debt investing with Funding Societies caters to a large number of investors and makes a potentially palatable entry opportunity for beginners with a lower risk appetite. In addition, the Guaranteed line of investment products effectively guarantees the returns to investors, making it a possible source of passive income.
“Should I invest in alternative assets?”
As with any investment, a thorough understanding of the alternative investment opportunities available is crucial before committing your funds. Explore the types of alternative investments we’ve discussed above, carefully considering your risk tolerance and long-term investment goals. Remember, alternative investments can be a valuable tool for portfolio diversification, but they may not be suitable for everyone.
The good news is there are options for various risk profiles. For beginners seeking different types of investments with lower entry points, debt investments, like those offered by Funding Societies, can be a good starting point. These platforms provide access to a variety of debt financing opportunities, allowing you to participate in crowdfunded loans to businesses while potentially earning steady returns.
Read more: How to Manage Your Investment Portfolio Like a Pro
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Disclaimer: This article is not meant to constitute/be construed as a form of recommendation, financial advice, or an offer, invitation or solicitation from Funding Societies to buy or subscribe for any securities and/or investment products. The content and materials made available are for informational purposes only and should not be relied on without obtaining the necessary independent financial or other advice in connection therewith before making an investment or other decisions as may be appropriate. View full disclaimer notice here
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