Looking for ways to expand wealth is becoming an increasingly simpler task in today’s dynamic market landscape. Outside of the stock and bond markets, there are various ways for investors to grow their money and diversify their assets. Thanks to the lowering of institutional barriers, investors can grab the opportunity to opt into an array of investment channels and secure additional income streams.
Well-known, publicly traded assets are known as traditional investments and encompass stocks, bonds, equities, and securities with fixed interest. On the other hand, investments such as cryptocurrencies, real estate, hedge funds, commodities, and even digital assets and collectibles are known as alternative investments. These investments usually offer high returns, but they often have a higher degree of risk. Still, that shouldn’t stop you from taking advantage of these non-traditional investment vehicles.
Here are some of the reasons why you should consider alternative investments to add variety to your portfolio.
Access to New Technologies and Strategies
Alternative assets such as crypto and other forms of decentralized finance (DeFi) allow investors to benefit from ongoing technological developments. Crypto, in particular, is becoming a popular alternative investment for its promises of lucrative returns.
Moreover, crypto investors can benefit from high liquidity and blockchain-focused regulatory provisions. Today, it’s easier to convert cryptocurrencies like Monero to cash or use them for commercial transactions. In addition, users can access new tools such as high-security wallets to protect their funds. For instance, you can use an industry-standard Monero wallet for your crypto exchanges that use next-generation capabilities to ensure utmost account security and data privacy.
Aside from new technologies, investors can also access highly profitable investment strategies. For one, investors can choose to become venture capitalists, portfolio managers, or financiers to make money from booming industries like tech. Such investors help fund start-ups and, in return, get a cut of the profits generated by these promising early-stage companies.
Broader Portfolio Diversification
As mentioned earlier, alternative investments allow you to have a more diversified portfolio. Adding variety to your investment channels evens out risk and makes your portfolio less vulnerable to losses in times of significant economic events and financial crises. Investments across disparate and uncorrelated markets, managers, and strategies provide a solid foundation for your portfolio and give you more channels for generating passive income.
Independence from the Stock Market
Another great thing about alternative investments is that they’re not directly correlated to the stock market. Having non-traditional investment vehicles helps you ensure that a portion of your portfolio will remain unaffected by the highs and lows of the unpredictable stock market. Crypto, for example, is a niche market that primarily relies on blockchain networks and community-based transactions rather than at-large markets.
In addition, real estate investments such as rental properties are not immediately affected by the state of the stock market. Even with market fluctuations, tenants will continue paying rent or mortgages that comprise a part of your income stream.
Because they don’t rely on overarching market trends, alternative investment channels can diminish the effects of market volatility on your portfolio. Private investments, in particular, are not vulnerable to share price fluctuations, unlike publicly traded investments.
To use another example, farmland is a reliable asset that can generate good returns despite the ups and downs of the commercial real estate and stock markets. Essentially, having additional ways to secure your income allows you to weather the market storms in the long run.
Direct Ownership and Tax Benefits
Private investments like crypto allow you to buy and sell assets such as coins on the market without having to go through a middleman. If you own a property or niche commodities like art or fine wine, you have direct ownership of such assets and can access tax benefits in the form of deductions, write-offs, and exemptions.
Alternatively, if you’re looking into private real estate funds, you have partial ownership of the fund and have the rights as a property lender. As such, alternative investments can give you more agency over your investments, which is always beneficial if you’re managing a broad portfolio.
Potential for High Returns
Alternative investments are known for being “high risk, high reward” income channels. Unlike traditional public investments, alternative channels can be tied to high credit and liquidity risks as well as asset complexity. Real estate is considered to be an investment type that consistently generates high returns, but it’s not without risks such as low liquidity, negative cash flow, property depreciation, and location-related concerns. Additionally, venture capitalists may either win big or face risks of bad investments if the companies they’re funding don’t take off.
Crypto is another alternative investment known for its potential for high returns. However, the crypto market is also quite volatile due to drastic price fluctuations driven by supply and demand. That said, we shouldn’t discount the fact that crypto is still a worthy addition to a diverse investment portfolio.
Taking Risks Outside the Traditional Market Space
According to data intelligence firm Preqin, the alternative investments market could reach a value of $14 trillion by next year. This may have positive implications, but as with any investment, returns from non-traditional income streams are not set in stone.
Still, such investments are worth looking into if you want to broaden your portfolio, keep risks to a minimum, and earn more with new technologies and industries. Overall, a good investment portfolio should include a healthy mix of new and traditional channels to remain stable despite evolving and ever-changing markets.
Carolyn Coley is a blockchain reporter. She joined Smartereum after graduating from UC Berkeley in 2018.