Alternative investments are typically long-term investments because of their illiquidity, and level of patience they require for investors. Just like traditional investments, i.e., stocks, bonds, and cash; holding onto alternative investments for more than 12 months has many benefits. Long-term investments have lower capital gains taxes and can accrue much larger gains in a longer period of time.
For investors who are familiar with traditional investing, hedge funds are great stepping-stones to getting into alternative investing. They are similar to managed funds like mutual funds. A group of investors or managers controls the fund and picks a diversified portfolio of securities. The major difference is that they can take more risks than mutual funds and outperform the market when it’s falling. Hedge funds have increased leverage, which also makes them riskier.
There’s a barrier to entry into hedge funds as investors must be “accredited investors” – essentially high net worth people or organizations who have a proven track record in the investing sphere.
Many hedge fund owners are notorious for their dealings and amount of money they make for themselves and their investors. A name given to a lot of these investors is Activist Investors. They purchase large sales of a company to elicit change in the form of being more profitable for shareholders.
Some recognizable names are Dan Loeb, founder and manager of Third Point LLC. In 2010 alone his firm returned 41.7%, and they have consistently beat the stock market that many funds have failed to do.
Now long-term investors are going to see tremendous gains they can’t find anywhere else on the stock market. But there’s a catch, getting into a high performing hedge fund like Third Point is hard.
Hedge funds as stated earlier require an investor to be accredited also funds are not allowed to advertise and it is up to their own discretion to allow investors in the fund, usually with a high price upfront investment. If an investor is thinking about investing in a hedge fund there are smaller outlets for them to take, for example putting up $100,000 rather than a couple million.
Hedge funds are not intrinsically good either; it takes stellar management and a proven track record to continuously outperform the general market. If hedge funds are of interest to an investor they can seek out fund management and inquire about investing if they have the required capital and knowledge behind them.
Before the real estate bubble burst it was almost common knowledge to non-investors to invest in housing. The real estate market is vast and varied. In a broad sense it can encompass residential or commercial buildings and land. After 2007-2008 the drop in house prices was on the forefront of everyone’s minds because it hurt regular working class people everywhere. Regular people were taking out mortgages to build new homes and grabbing up land because they sought profit and investment potential.
It’s almost 2016 and investors are wondering if it’s time to get back into the real estate game. There’s a cultural shift going on as millennials are forsaking ownership for renting homes. This isn’t necessarily a choice but a necessity, as most can’t afford the high costs that come with owning a home let alone the initial capital investment. What does this mean for investors though? Millennials are going to have to live somewhere. If investors have the funds then this is a great opportunity to invest in apartment complexes and real estate in metropolitan areas that cater to younger emerging professionals who will be renting.
There’s a lot of opportunity here, investors are not just confined to putting down a lump sum investment. Real estate crowdfunding is a new way for investors to put down a small amount of money in million dollar deals while seeing great returns in their investments.
Your average investor is not going to be thinking about emerging markets, as they can be incredibly risky and unregulated. Investing in foreign markets can be hard for a few reasons; there are many barriers of entry and not a lot of western coverage on them either.
One area that comes to mind is Africa. One of the most promising areas of investment in Africa is farmland and the agri-business sector. This is by no means a new idea, but an incredible opportunity for alternative investors everywhere. Global companies have been grabbing up farmland in Africa, but they have not developed it to its full potential. Often they leave the lands worse off than they were before and displace local residents off their own farming land.
What African countries need are investors who are going to stick around to see these new agriculture industries rise to levels that can compete with the rest of the world. If done right Africa will not only be able to lift it’s rising populations out of poverty and hunger, but become a supplier for the rest of the world.
For the bold and adventurous investors it’d be an interesting play to start acquiring farmland and investing in companies that are interested in starting agriculture business in various African countries. The risk is high here as unstable regimes can topple business ventures and the lack of infrastructure could pose a problem. The rewards are immense as some estimate that African food markets could reach a $1 trillion valuation by the 2030’s. One way or another Africa’s time is due and they will mirror the rise that Asian markets had during the 20th century.
For the more mild mannered investors, who still have a flair for adventure they can invest in a diversified group of ETFs (Exchange-Traded Funds). Some ETFs of note are AFK and NGE. This is a bridge for western investors to get a taste of some African markets. AFK has its funds primarily based in financials, energies, and materials. NGE on the other hand is based in Nigeria and is more volatile as they relay heavily on the oil industry and the market is in a state of flux during election time. This is definitely one of the riskier ideas, but has rewarding long-term potential.
Commodities are something that have been traded throughout time. They include precious metals, crops, and fossil fuels. If you look at the current oil prices, investors can get a picture at how volatile this market is. This isn’t a market to jump in and out of if you’re not an experienced investor.
This is another area that takes time to feel out the markets in its many ups and downs and capitalize when the time is right. Just look at 2015 for the oil market and the potential it has in the upcoming year. Price per barrels hit bottom and some analysts believed they could sink even more. Followed by the inevitable increase that is bound to happen. By investing in developed companies that hold these commodities is a great strategy as they have great dividend returns for investors. More so than any industry, oil and other commodities are dependent on the political environment between different countries and organizations. Buying into in commodities isn’t a passive investment investors must be alert.
There is also always long-term value in commodities because of the inflation protection they provide. Putting money into commodities is beneficial because they are hard assets.
Venture Capitalism is not for the faint of heart or novice investor. It’s a long-term strategy because it deals with new startup companies and making them profitable for investors. Venture Capitalist are private equity firms that invest in the early to mid growth stages of companies. They raise capital by funding from high net worth individuals and groups and deploying the funds to aid in the company, they of course get a stake in the company for the contribution.
This startup capital is essential for a new company to grow and expand, as they don’t have the proven track record to access public financing. Venture capitalism is risky business because there’s the possibility of the new company failing due to competition or lack of success in the business world.
Venture capital investing is long term because it takes time for the company to grow and mature before returns can come from a liquidity event.
The nature of many alternative-investing ideas is mostly long-term. There are risks to be taken when investing outside of traditional marketplaces that can give investors some serious returns and gains on their initial investments. Thinking about the big picture is imperative to staying focused on not losing sight of the money that can be made in the long-term.