2016 promises to be a roller-coaster ride if the early turmoil is anything to go by. Alternative investments are intended to be a way of diversifying your portfolio away from sole dependence on equities and bonds.
Any successful investing strategy requires a patient long term approach rather than a knee-jerk reaction to individual events, however badly they affect the markets. Alternative investments do present you with an opportunity to potentially reduce your risks, provided you choose to invest in a way that means you are not still tied to the performance of the main stock markets.
For many years gold has been seen as a reliable hedge against stock market volatility and past performance has demonstrated that the price of gold has often strengthened in times of falling stocks and economic uncertainty. In fact, we produced a report on this titled: Why Warren Buffett is Wrong About Gold.
As a starting point when it comes to alternative investments, this precious metal still has its fans and the beauty of being an investor today is that you have a plethora of ways that you can now add some gold to your portfolio without having to buy any physical bullion yourself.
One of the safest ways (in relative terms) of investing in gold and commodities in general is to buy into exchange traded funds (ETFs).
ETFs are basically mutual funds that purchase commodities like gold or a basket of different commodities as a way of providing you with an extra layer of protection against falling prices in one particular commodity.
Property has long been associated with building personal wealth but investing in real estate is not a one-way street and prices can fall, as they did with style in 2008.
If you hold on to an individual piece of real estate for at least a decade or so there is a realistic chance that you could see its value rise over this period but if you are looking for a real estate alternative investment there is an opportunity to join a group of investors and put your cash into a portfolio of properties.
You might consider a real estate ETF, real estate crowdfunding, student property investments or another option would be a real estate investment trust (REIT). Investing in a REIT opens up access to invest in properties that would not be affordable as an investment for many individual investors and liquidity is normally acceptable with many of these REITs if they are traded on public exchanges, meaning you can normally cash out when you want to.
- Our guide to real estate investing
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It is worth considering coins as an alternative investment and it is important to distinguish between the two types of coinage that you can put your money into.
Bullion coins are minted by their respective national governments so you could buy the American Gold Eagle for example or the Australian Nugget. These types of coin are not collectable and tend to follow the commodity price of gold so they are not likely to prove too volatile in terms of price fluctuations.
You should however be aware that buying these coins will cost you a commission in the form of a mark up by the dealer and whilst it may well be a reasonable safe investment, it is probably not a strategy that is going to earn you a spectacular return on your investment, unless the price of gold rises sharply.
Collectable or numismatic coins are a different proposition as these types of coins are valued not by their weight in precious metal but by their scarcity and desirability.
If you are considering coins as an alternative investment you should do your research and attempt to find a reputable dealer through recommendation and always remember that marginally rare coins can offer modest returns but if you buy right, there are potential significant profits to be had.
It is easy to understand why wine is seen as a popular alternative investment and if you can resist the temptation to uncork your assets, there is a good chance that you could achieve a steady return on your investment of anywhere between six and fifteen percent per annum.
Wine connoisseurs and collectors are famously fickle and certain wines and vintages can quickly come in and out of vogue, so you have to stay on the ball and get good advice on what is trending and what stock should be auctioned off to hopefully lock in a profit.
You normally have to invest in large quantities of wine in order to make a worthwhile return and you don’t have to have the specialist storage facilities needed to keep the wines at optimum temperature, if you invest in a suitable investment vehicle that provides buying advice and storage facilities.
Fine-wine investments have proved remarkably resilient and have outperformed global equities since their performance began to be measured back in 1999. You should look to invest for a minimum of five years if you want to derive the best possible return on your money, based on past performance.
If you are considering alternative investments in 2016, these options would not be a bad starting place but do remember that this information is for guidance only and not a recommendation, so make sure you do your own research before getting involved.