What Are The Safest Investment Alternatives?
When it comes to investing money, the stock market can be too volatile for many. So, some investors have been looking for safer ways to invest. In recent years “alternative investments” have become increasingly popular, but what exactly are they?
Alternative investments are investments that aren’t classed as the three traditional asset classes: Stocks, cash, and bonds. Alternative investments shouldn’t replace these traditional assets, but most financial experts recommend using alternative investments if you want to diversify your financial portfolio.
What diversifying your portfolio means is putting some money in stocks and bonds, but also budgeting to put some money into alternative investments as well. These investments can be anything from rental properties and farmland, to fine wine and art.
Alternative investments have historically been more popular amongst high net-worth individuals, as they usually require larger initial investments compared to stocks. Whilst this may be the case with fine art, there are some alternative investments that can’t be cashed in as quickly or easily.
With that being said, there are quite a few different advantages when choosing to invest your money in alternative investments. In this guide we’re going to look at some of the safest and most advantageous investments out there to help you further your research.
Art can be a relatively good investment, as the price doesn’t usually reflect the ups and downs of the traditional stock market. With that being said, the art market does experience it’s own price fluctuations which may affect the value of a piece.
You may gear your focus to well-known and valuable pieces by the likes of Monet or Picasso, as these pieces tend to have stable values. However, if you like to take risks, you may want to invest in Post-War and Contemporary pieces, as you’ll be able to purchase them at much lower costs. Whatever you choose to invest in, research past auction prices for that particular artist or object. You will also need to look for a certificate of authenticity, so you don’t invest in worthless counterfeits.
One of the big advantages of investing in art, is that if you have an appreciation for what you buy, you will always be able to enjoy the beauty of the piece or object, even if it doesn’t bring you large financial returns.
If you fancy yourself as a wine connoisseur, you can easily transform this hobby into an investment. One thing to note about the wine industry is that prices of certain vintages and fine wines can fluctuate on a yearly basis. However, there are some sought after vintages and vineyards that significantly increase in price when the supply becomes scarce.
A lot of wine collectors are known for being rather picky, as an investor you will need to stay on top of which vintages will make the best investments. Knowing your vintages is a good place to start, as then you can look into different vineyards, winemakers, and regions. Wines from the Bordeaux region in France often bring sizable returns, as well as Italian Tuscans, Spanish reds, and Californian Cabernets.
You must make sure that you store wine in temperature-controlled environments, as buyers can always tell when a wine has been stored improperly. It’s also better to buy an entire case of wine if you can, as this will add to the authenticity.
Gold often gets a bad reputation, which is largely due to the fact that the price frequently fluctuates. With that being said, precious metals can be a good hedge when investors are unsure about dollar-based assets.
The best way to hold physical gold would be in rare coins or 0.999 fine gold bars. Jewelry isn’t usually a solid gold investment plan as style and brands constantly change.
Similarly, silver can be another great precious metal to consider investing in. The price per ounce for silver is less than gold, so it’s easier to own if you’re on a tight budget. The interesting thing about silver is that its price doesn’t move in correlation with gold. If Gold’s price increases first, silver still has some room to move.
The best way to hold silver – whilst enjoying market values – is with silver coins and bars. Most U.S. coins with a mint of 1964 or earlier contain mostly silver, and can be worth more than the face value of the coin.
Commodity investments include resources like fossil fuels (coal and oil), crops and livestock, and precious metals. However, this can be one of the more volatile markets, as unpredictable natural disasters and current events can have an impact on prices. Because of this unpredictability, commodities make far better long term investments as opposed to short term investments.
Real estate has always been a popular alternative investment. However, after the 2008 crash in the real estate market, many people have been nervous about investing in it. But, it is always best to purchase real estate when the prices are low.
There are three easy ways to invest in real estate. These are:
- Buying to rent/buying a rental property
- Joining a real estate investment group
- Buying shares in a real estate investment trust (REIT)
If you purchase a rental property, it will usually provide you with a steady, reliable income. It’s worth being cautious, however, as you may also end up with an empty property if you are unable to find tenants. Being a landlord also includes paying property taxes, and general upkeep can limit profits.
Real estate investment groups deliver a more hands-off and low risk method of real estate investment. The groups consist of individual investors who contribute money to a company that purchases a property (like a set of condos). The company is the one who will manage the property, but the group will get a portion of the monthly rent in exchange for investing.
REITs provide an accessible way for individuals to invest in real estate. This is a group that will invest in various properties, and will receive a preferential tax treatment from the IRS as they pay most of their income to shareholders. As shares in a REIT can be purchased on public exchanges, they are a more liquid alternative investment.
A hedge fund will collect money from multiple investors before spreading the communal capital into various investments, as this will increase the chance of a return on an investment. In comparison to other funds, hedge funds are less regulated by the U.S. Securities and Exchange Commission, which allows fund managers to make a very broad range of investments.
Hedge fund managers typically invest in stocks, commodities, futures, and financial instruments. As this is such a broad range, investments often bring back positive returns. However, one of the biggest drawbacks is that they often require a minimum investment. Typically, this minimum fee is around $500,000, and they also have expensive fee structures.
If you are able to invest in a hedge fund, it is worth being cautious. Most hedge funds aren’t high-risk, but you need to make sure you research a fund – and it’s manager – before you commit to investing.
These are just a handful of some of the alternative investments that are considered relatively safe. However, like any investment, you must still be cautious about where you’re putting your money. Make sure you do your research first, particularly into any groups like hedge funds, or into objects like fine art.