Understanding the Different Alternative Investment Solutions
Thinking of trying alternative investments? You need unique alternative investment solutions to handle them. Here are a few options for ordinary investors.
Investing is so much more than just stocks and bonds. In fact, there’s a whole wide world of alternative investments out there, and they’re a great way to insulate your portfolio against stock market volatility.
But first, you need the tools to manage those assets successfully.
Here’s a breakdown of why you need alternative investment solutions, and a few ways average investors can approach it.
What are Alternative Investments?
Alternative investments are simply any type of investment that does not fall into one of the three conventional investment categories:
Because of this, alternative investments can be almost anything. A piece of fine art is a type of alternative investment, but so is a plot of land, private debt, a hedge fund, or a bottle of wine owned by Thomas Jefferson. This means alternative investments have a huge variety of unique qualities.
As a rule, though, alternative investments have a few features in common. They have very low correlation to traditional investments, which can be a good thing for investors looking to insulate their portfolios. On the other hand, alternative investments can also be quite difficult to value—for example, how would you value a 1933 Saint-Gaudens Double Eagle $20 gold coin, given that there are only 13 in existence?
For this reason, and because the market for such investments is highly niche, alternative investments are much less liquid than their traditional counterparts (in other words, they’re harder to sell and convert into liquid cash). And because alternative investments are so unique and illiquid, they usually come with high purchasing costs.
In short? Alternative investments are far more complex than their conventional counterparts.
Why You Need Alternative Investment Solutions
This brings us to alternative investment solutions.
When you invest in stocks, you’re dealing with an incredibly common investment asset. It’s also pretty straightforward to work with. It’s easy to buy, easy to value, easy to sell, and a lot of people use it. Because of this, there are a lot of available solutions working with stocks (and other conventional investments too) simply because the mechanisms for doing so are simple, even if it requires art to do it successfully.
Alternative investments are a different story.
Because the market for such investments is smaller, and because the investments themselves are more complex (and less regulated), you can’t work with alternative investments in most conventional investment solutions. You need solutions that are specialized to navigate the unique market—sometimes even a unique alternative investment asset class.
The Best Alternative Investment Solutions
The best alternative investment solutions depend on what you’re looking for. The simplest way to approach this is by asking what types of alternative investments you’re interested in, as this will change the market you work with and the offerings available.
For example, if you want to work with real estate, your best bet is to look at specialized real estate investment vehicles, specifically ones that relate to your interests.
In some cases, certain vehicles that qualify as alternative investments can also house alternative investments. Hedge funds are the best example of this. In this case, though, you have to consider what kind of investor you are—these cater predominantly to high-net-worth individuals and institutional investors (under securities law, these are the only investors who qualify) so average investors have to invest indirectly or get priced out.
Here are the best alternative investment solutions for the average investor looking to get started.
In most cases, an average investor’s best bet is to find a specific asset type that interests them and find a platform that specializes in it. This gives you a two-for-one deal—you get access to an asset class that interests you and you get access to experts so that you can make the right decisions for your portfolio.
Some of the best specialized platforms include:
- Masterworks (that’s us, and we do fine art investing)
- Fundrise (real estate)
- Artivest (private equity, hedge funds, and real estate)
- Rally (classic cars)
- Wefunder (startups)
- Livestock Wealth (livestock)
With any platform, you still need to do your homework. Think about why you’re interested in this asset class, what you’re hoping to get from it, and how it fits into your larger portfolio.
If you’re not sure where to begin with alternative investments on your own, or if you want access to a broader group of assets under one umbrella, you can also talk to a broker.
Think of your broker as someone who does the homework for you. They investigate every investment vehicle before they offer it to you, and they have the training to understand it, so it’s that much easier to know what you’re getting into. That said, you have to do your homework to find a broker that fits your investment style, and broker fees can eat through a lot of your gains.
If you’re comfortable with investing and want some tax advantages on top of your investment performance, you can also invest through your individual retirement account, or IRA.
Think of your IRA as a box, like the safety deposit boxes of yesteryear. It can hold almost any investment vehicle you like, all under a tax-advantaged umbrella that allows you to make the most of your savings and tax brackets as you age.
A word to the wise, though—not all alternative investments are allowed in IRAs. Art, for example, is not allowed in IRAs—it was disallowed in the 1970s after the IRS found investors using IRAs as a shield to hide stolen Nazi art and banned artworks from IRA protection so that IRAs could not be used to prevent stolen art from being returned to its rightful owners.
Want to Get Started in Art Investing?
Alternative investment solutions are an exciting way for everyday investors like you to get involved in high-performing asset classes, protect your portfolio against inflation, and see great returns. So if you’re ready to get started with art investing, we’re here to make it possible—on our platform, you can buy shares in multi-million-dollar artwork and profit when we make the sale. Ready to get started? Fill out your membership application today.