The global investment market is incredibly large and diverse, with new asset classes and niches having been added continuously over the years.
This number includes so-called “alternative investments”, which describe virtually any asset class outside of traditional, long-only options such as stock and bonds. Interestingly, traditional investments are forecast to deliver only modest returns of 4% per annum during the next 10 years, so a growing number of investors are seeking out such options.
But what are the most common types of alternative investment, and what are the advantages of such asset classes?
What are the Main Types of Alternative Investments?
Of course, the description of alternative investments is relatively broad, so it includes a large number of options to choose from.
One of the most prominent alternative investment options is forex, which describes the trading of international currency pairs as derivative assets. Make no mistake; you can go long and short with forex, enabling you to profit without assuming ownership of the underlying financial instrument.
What’s more, forex also offers you access to increased leverage through trading platforms on Oanda. This is expressed as a ratio and leveraged products can often rise as high as 200:1 on reputable platforms, creating the potential for disproportionate returns on relatively small deposit amounts.
Forex is an incredibly accessible alternative asset class, and one that certainly offers more appeal than options such as real estate in the digital age.
However, while real estate is a little more costly to get involved with, it does offer flexibility in terms of how you profit and the precise type of assets included within the marketplace.
For example, real estate has evolved into a multi-faceted asset class that includes both publicly-listed and private property investment trusts (REITs), which serve as alternative investment funds in which you don’t have to buy or own properties outright.
Another common alternative investment option (and one that’s particularly popular among institutional investors) is hedge funds. These are investment vehicles that typically use a wide range of non-traditional strategies (such as long-short trades), in a bid to diversify portfolios and while hedging against exposure in more traditional markets.
What are the Benefits of Alternative Investment?
This is obviously the single most important benefit of alternative investments, which typically provide a hedge against risks and helps to naturally diversify your existing portfolio (both in terms of scope and flexible returns).
The reason for this is simple; as alternative investments boast a low correlation to traditional assets like stocks and fixed-income bonds, which means that they’re likely to perform well as others start to depreciate.
Due to the higher and more complex risk-return profiles, it also stands to reason that alternative investments should deliver potentially higher returns.
Of course, this is increased further by the higher leverage available through vehicles such as forex, which is why this remains the single most popular alternative investment option in the modern market.