Alternative investments are assets that don’t fall into a traditional category, like stocks, cash, or bonds. Making the right investments in alternative asset classes can help diversify your business’s portfolio, open new business opportunities, hedge your company’s value against inflation, and create new income streams.
As fintech solutions like AI lending are changing investor perceptions, consider investing in the top four alternative asset classes that can boost your portfolio in 2024. Find out which alternative asset classes are worth considering for investment and understand how these investments can benefit your business.
What Is an Alternative Investment?
Alternative investments refer to non-traditional assets that don’t fall under the typical investment categories, like fixed-income securities, liquid assets, or equities. Alternative investments commonly traded today include collectibles, commodities, private equities, hedge funds, infrastructure, and real estate.
By nature, alternative investments have drawbacks, such as higher risk than traditional investments, lower liquidity, and higher fees and transaction costs. However, they also offer many advantages for businesses looking for new opportunities:
- Portfolio diversification. Alternative asset classes typically have a low correlation with traditional equivalents. Businesses can use alternative assets to spread their investment risks and reduce volatility.
- Higher return potential. Many types of alternative asset classes can perform better than traditional investments when successful. For instance, hedge funds often yield higher returns due to fewer regulatory constraints and the ability to capitalize on market movements.
- New revenue streams. Certain alternative asset classes, such as real estate and infrastructure, can generate income, providing your business with a new revenue stream through renting.
- New opportunities. Investing in alternative assets can open your business to new markets and opportunities, helping it grow or expand. For example, investing in a start-up can position you at the forefront of emerging trends or technological innovations.
Top Alternative Investments to Consider in 2024
When diversifying your company’s portfolio in 2024, consider the following alternative investments:
1. Hedge Funds
A hedge fund is an investment fund where professional fund managers pool money from multiple investors. These managers use the pooled money to invest in various assets and use various strategies to generate high returns.
Hedge funds are typically reserved for accredited investors, meaning the minimum income or assets needed to participate are higher than traditional investments. Hedge fund managers may also charge various fees for management and performance.
The potential benefits of hedge fund investments include:
- High potential returns. Hedge fund managers employ aggressive, high-risk investment approaches to maximize returns. While the risk is higher, the potential payout matches the risks.
- More operational flexibility. A hedge fund is more flexible than a traditional mutual fund because it is less regulated. It allows hedge fund managers to use a broader range of investment strategies and adapt to fluctuating market conditions more effectively.
- Access to specialized expertise. Investing in a hedge fund also gives you access to the expertise of its managers. They have extensive knowledge of risk management, asset valuation, and the market dynamics in their investment areas.
2. Peer-to-Peer Lending
Peer-to-peer (P2P) lending is an alternative form of financing allowing individuals or businesses to borrow money directly from lenders. Investing in P2P lending means becoming a P2P lender and providing your capital to individuals or companies directly. This bypasses traditional institutions like banks, offering more flexibility and a broader potential network of borrowers.
P2P lenders and borrowers typically connect on dedicated online platforms, which may use advanced technologies like AI lending platforms for risk assessment and credit scoring. P2P lending can provide your business with benefits like:
- Investment flexibility. When dealing with a P2P lending platform, you can choose how much you want to invest. The minimum investment amounts and requirements are much lower than hedge funds, making P2P lending accessible to smaller businesses.
- Direct risk assessment. As a business investor, you can analyze borrower profiles, conduct credit risk analysis yourself, and determine the risk-reward potential of each loan.
- Tailor your investment criteria. P2P lending lets you set your approval criteria based on business objectives, investment strategies, and risk tolerance. For example, if you prefer to invest in lower-risk, lower-return loans, you can prioritize them as a risk mitigation strategy.
3. Real Estate
Real estate is a prominent alternative asset class known for its consistent positive returns for investors. Typical business investment opportunities in this sector include:
- Residential buildings, like homes, apartments, and condominiums
- Commercial buildings, like offices, retail storefronts, and malls
- Industrial buildings, like warehouses and factories
- Agricultural real estate, like farms and animal-rearing facilities
- Mixed-use real estate, which combines at least two of the above categories
- Undeveloped land
When you invest in real estate as part of a business strategy, you can realize the following benefits:
- Steady income streams. Real estate, especially rental properties, can generate income through rent. Investing in real estate and renting to tenants like families or other businesses can provide steady monthly revenue streams for your company.
- Development opportunities. Buying real estate contributes to your business’s development needs and expansion objectives. For example, if you run a company in the hospitality industry, purchasing a suitable building expands your reach, providing a new location for customers.
A collectible asset holds value due to its rarity, cultural value, historical significance, or other factors that make it unique and desirable. Collectibles encompass a wide range of assets, such as:
- Art pieces
- High-end jewelry and timepieces, such as vintage Rolex watches
- Antique furniture
- Rare coins
- Vintage or low-production cars
- Historic postage stamps
- Rare books and manuscripts
- Collectible toys, trading cards, action figures, and memorabilia
Although it’s a unique investment approach, your business can see the following benefits from purchasing collectible assets:
- Appreciation potential. Rare or highly sought-after collector’s items tend to appreciate in value over time. This means the longer you hold the asset, the higher returns you may see for the initial investment.
- Brand enhancement. Owning rare or desirable collectibles can enhance your business’s brand and boost its reputation, especially if it fits your sector or industry. For example, a luxury car dealership can invest in rare or vintage cars to boost its prestige.
- Hedges against inflation. Collectibles are an asset class that hedges investors against inflation, meaning they hold value independent of market fluctuations. Investing in collectibles can help preserve your business capital’s purchasing power in various economic climates.
Invest in Alternative Assets for a Diversified Portfolio
Investing in alternative assets can help your business diversify its portfolio and spread investment risk across a wider selection of asset types. Depending on the assets, this strategy can preserve your business’s purchasing power, create income generation opportunities, and potentially provide higher returns than traditional investment assets. Consider your business’s alternative investment opportunities to build a stronger investment profile and grow your company.
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