Alternative investments have been in the limelight over the past few years and they are on the radar for smart investors in 2023 but not all of them are good. Whether an alternative investment is suitable for you or not will depend on your goals and the timing. They are an attractive form of investment but not suitable for everyone. Before you make the decision, understand what it is and how it works.
In this article, we will give you a brief introduction to alternative investments and help understand their advantages so that you can decide what you want to invest in right now.
What are Alternative Investments?
Alternative assets are those assets that fall outside the conventional categories of investments like stocks, cash, and bonds. They include investments like venture capital, private equity, art, commodities, hedge funds, real estate, or derivatives.
They are known as alternative investments because they do not fit into the traditional asset classes and are not regulated in the same manner. However, they have become increasingly accessible to retail, and individual investors making them highly popular today. Before we proceed, let’s take a look at the benefits of alternative investments.
Alternative Investment Benefits
Alternative investments offer an opportunity to put your money into asset classes other than stocks, bonds, or cash. They come with several benefits as discussed below.
Tax Benefits
There are compelling tax benefits with alternative investments. You get to keep more of the profit due to its structure and in some investments, you get to be a part-owner of the fund so the tax benefits are directly passed on to you. You get to enjoy pass-through depreciation as well as long-term capital gain treatment. Based on how you structure the investment, you can grow the investment tax-free.
Diversification
If you are seeking portfolio diversification, alternative investment could be an ideal option. With diversification, you reduce the risk associated with the investment and enjoy income from multiple investments. Say, you have invested in real estate and the stock market, when the stock market drops, you will still have stability in your portfolio through real estate.
Non-Correlation with Publicly Traded Markets
The biggest advantage of investing in alternative assets is that it is totally unrelated to the movement of the market. Hence, no matter the volatility in the market, your investment will not be affected.
Higher Potential Returns
Although there is no certainty about returns on any type of investment, certain alternative assets do pay you back in cash on a regulated basis. Some can produce a very strong income while many are structured in such a way that you get a steady, consistent income. You just need to structure the investment in the right manner.
Alternative Investment Picks You Could Invest In Now
The market is always emerging and timeliness is the key to getting in on the right investment at the right time. If you want to invest, here are the top five types of alternative investments you can consider.
Hedge Funds & Private Equity
Hedge funds are investment funds that use different investing strategies and trade liquid assets with the aim of generating a higher return on the investment. It is managed by a professional who has the skills and expertise to execute strategies in the market. At New Era, our income fund produces short term returns that are taxable as normal income.
Private equity is a broad investment category where you take control of an operating business. If you think that a business has the potential to generate returns in the long term, you can invest in it and become a part of the company.
Equity Crowdfunding
Equity crowdfunding allows investors to set aside a small amount of cash and own a slice of equity in the business. It is a financing strategy used by many companies today where you can get part ownership in exchange for capital. If the business is a success, you take home big gains.
Commodities
All commodities are real estate and they include oil, precious metals, natural gas, and industrial metals. They can be considered a hedge against inflation since they are not affected by the volatility of the stock market. The value of commodities will depend on the demand and supply in the global market.
Royalties
Royalty is a payment to the owner for the asset or property. If you own an asset like a natural resource or a franchise and allow another party to use it, you get a payment in the form of a royalty. It can become a source of regular income.
Mineral Rights
Mineral rights owners have the possession and control of the minerals in their real estate property and they give rights to the third party to extract minerals. It is an ideal way of generating passive income from your asset. One of the most profitable minerals today is oil and gas.
Alternative investments have the potential to protect your portfolio from the stock market’s ups and downs while also generating steady returns. However, only you can decide which assets suit your investment goals and criteria.
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