One of the fundamental principles of personal finance is portfolio diversification, that is, investing in a variety of assets and asset classes that are not closely related in order to mitigate risk and increase returns. While conventional portfolio diversification strategies focus on stocks, bonds, and mutual funds, there is a wide array of alternative investment opportunities that can add both risk and return to a portfolio. This guide will introduce you to some of the most popular alternative investments for portfolio diversification.
Private company stock
Traditional investments such as stocks and bonds have long been the go-to for many investors. However, there is a lot of value to be gained from other alternative investments that can help diversify a portfolio and increase returns. Private company stock is one such alternative investment option that can be used to enhance an investment portfolio.
Private company stock offers an investor access to a company that may not otherwise be publicly traded or open to new investors with traditional investments. Generally speaking, which companies are available for private ownership will vary from market to market.
Rental properties
Investing in rental properties can be a great way to diversify an investment portfolio, increase cash flow, and generate long-term wealth. When done properly and with sufficient research, investing in rental properties can be a low-risk strategy that provides investors with a steady income stream as well as potential appreciation.
Real estate offers many advantages over other investments such as stocks, bonds and mutual funds. These include built-in inflation protection, the potential for tax savings through depreciation deductions when renting the property to tenants, and more control over the investment since you determine the purchase price and rental terms (e.g., length of lease). Rental properties also offer investors more liquidity compared to other real estate investments such as flipping houses or developing land since it is easier to sell a rental property than it is to sell newly constructed homes or raw land.
REITs
A real estate investment trust (REIT) is a company that owns and, in some cases, operates income-producing real estate. REITs were created to give individual investors the same benefit of owning larger portions of income-producing properties, such as office buildings, luxury apartments, warehouses and shopping centers, without having to invest the large amounts generally associated with commercial real estate. A REIT can own multiple properties or just a single property.
Unlike investments in physical properties that involve significant due diligence, inspections and negotiations for financing or contracts related to purchase or rent agreements, REITs trade on public exchanges like stocks and require less effort for individual investors when it comes to the research needed before taking action on investments. It’s important to note however that although there are many benefits associated with investing in REITs compared to direct property ownership there can be cash flow limitations due to certain constraints associated with being listed as a public company traded on exchanges.
Crowdfunding platforms
This type of investment offers investors the potential to diversify their portfolio while having access to a variety of different opportunities within real estate. In essence, crowdfunding involves several people pooling together their money in order to finance a single project or multiple projects at once.
The primary benefit of this type of investing is that it enables investors to diversify across different types of real estate such as single-family homes, multifamily dwellings and commercial buildings. There is something for everyone when it comes to choosing a crowdfunding platform for your portfolio.
For those who are looking for more passive investments, peer-to-peer lending platforms are perhaps the most popular choice for crowdfunders; however, there are many other options available which provide higher returns with greater amounts of risk associated with them. These include equity investments in everything from office blocks and warehouses to apartment buildings and special purpose vehicles (SPVs). With equity investments you also have greater control over how your money is invested and how it can be used to generate additional future income streams if desired.
Bank of China; and Austrian Philharmonics minted by Austrian Mint with specific face values.
Oil and gas
Oil and gas prices can be extremely volatile, which presents an opportunity for both gains and losses. With that being said, there are always potential rewards for those who invest in oil and gas as part of their portfolio diversification strategy.
By investing in oil and gas, you can gain exposure to markets which lack asset diversification, meaning that you stand to make huge gains with relatively small investments. Additionally, the income generated from investments in natural resources (such as oil and gas) has traditionally been viewed as less risky than other asset classes due to the low correlation between these commodities’ value and the broader markets.
The primary method of investing in oil and gas is through the purchase of commodities futures contracts. This allows investors to buy or sell a set quantity of these commodities at fixed points in time without taking on physical storage risks or other complications associated with taking title ownership over an actual barrel or cubic foot of natural resources. In addition to access to futures markets, investors also have options such as exchange-traded funds (ETFs) which provide simpler methods of investment than having direct exposure to futures positions.
Precious stones
These glossy objects of beauty, when artfully set in fine jewelry, can increase in value over time. Although this type of investment may take longer to increase in value than other commodities such as gold and silver, they offer a complementary layer of portfolio stability. Besides protecting against economic downturns and natural disasters, many precious stones have traditionally been considered excellent investments because they are not subject to inflation or currency devaluations. This attracts many individuals who are interested in preserving their wealth for the future.
When it comes to investing in precious stones, there are several options available. Jewelry made up with emeralds or rubies is a popular choice as it’s typically viewed as an attractive item that can retain its value over long periods of time. Other options include loose stones such as diamonds, sapphires and tourmalines that could potentially appreciate more quickly than gems set in jewelry. It’s important to note that it is not just the color but also the cut, clarity and carat weight (size) of the stone which determines its monetary worth; so, understanding the evaluation process is key when considering a purchase decision.
Conclusion
When diversifying a portfolio, alternative investments can be a great way to reduce risk and open up new opportunities. There are numerous options to consider, such as cryptocurrencies, precious metals, commodities, real estate investment trusts (REITs), private equity and venture capital funds, and even peer-to-peer lending. Regardless of an investor’s strategy or risk tolerance, it is always important to stay informed and keep in mind that alternative investments can have the potential for large returns with increased risk of capital loss.
