A Look Back at Alternative Investment Performance Over the Last 20 Years
A good investment doesn’t always have to be a stock or a bond. These are considered traditional investments and often make up the bulk of most investors’ portfolios. An alternative investment is anything that isn’t a stock or a bond that may provide some sort of return. So things like art, real estate, hedge funds, private equity, etc. The historical return for alternative investments makes them an attractive option for savvy investors.
For example, the art market has maintained an average return of about 5.3% between 1985 to 2018. In fact, some financial experts believe that some areas of art can outperform the bond market as a whole. This is just one example of why alternative investments are so attractive and why they are sought after. Below is a more in-depth look at several types of alternative investments.
The idea of having a monthly stream of income is attractive to many investors. When done right, real estate can appreciate positively in time and provide a great source of income for an investor. In fact, commercial real estate investments outperformed the S&P 500 by about a percent over a 25 year period. While there are risks associated with any investment, being able to beat any market, especially the S&P 500, is a great accomplishment. Real Estate should be a serious consideration as an alternative investment.
Alternative investments also include many new and exciting opportunities for investors. In fact, Ethereum has experienced a 1000% return since 2020 alone. A cryptocurrency is a digital currency that is protected with cryptography so it can’t be counterfeited or double spent.
While it is true that crypto continues to be a controversial investment, it can’t be ignored. The returns that are being seen in such a short time are incredible. This is particularly true when compared to other alternative investments like art or hedge funds.
Art and Antiques
Paintings, sculptures, metal works, and just about anything can be considered a work of art. If it was created by an artist, then it’s a work of art. Sometimes, the artwork doesn’t even have to be created by a person. Some pieces of art are done by AI or even animals. Still, the historical return for art has often beat out the bond market. In 2018, the global art market was estimated to be about $69 billion dollars.
Antiques are also loosely coupled with art. An antique is anything that is over 100 years old. It’s important to remember that a piece of art can also be an antique and this could add to its value. It’s also very important to understand that not all antiques, like all art, will have value. This is why it’s important for an investor to work with professionals so they know their piece of art or antique has the kind of value they want.
A group of people that invest in a private company or buy that company out, away from public markets, is private equity. Most private equities are formed with both general partners (GP) and limited partners (LP). The general partners are responsible for executing the investment or buyout. The limited partners sit back and collect the money after everything is said and done.
Private equities are a popular choice of investment because you, the limited partner, have limited liability and are owed a certain amount of shares in the partnership. The actual amount, and how much each share is worth, is up to the partnership. The actual return for private equity has been about 10.48% for the last 20 years.
The oddest form of alternative investment is surely collectibles. The returns for this type of alternative investment are often difficult to track because each type of collectible appreciates at different rates. For example, rare whiskey appreciated by 40% in 2018 and by about 580% that decade prior.
The important thing to remember with collectibles is that it’s a great way to mingle investment with the joy of ownership. While the historical returns are present for collectibles, it’s important to keep this in perspective. Having a broad knowledge of who is buying and who is selling can make investing in collectibles more than worthwhile.
Investing in the art market doesn’t have to be for the wealthy or privileged. Masterworks seeks to democratize the investment of art, a 1.7 trillion asset class. You don’t have to take the journey of investing in art alone. Equip yourself with the knowledge necessary to make your investments a success.