The new year is almost here and a new start awaits investors who are ready to diversify their portfolio. While bonds and the stock market may still reign supreme as the top investment options, the market is currently experiencing a shift in how alternative investments are perceived.
Of course, alternative investments are in no way a “one size fits all solution” and each investor can be more or less attracted by them, but including them in your portfolio can offer some key benefits, provided you make an informed decision and put your money in the right place. They can be a hedge against inflation and they can offer a strong profile of risk-adjusted returns, which is why in the first trimester of 2018 52% of investors are allocating to three or more alternative asset classes. There are many alternative investment ideas that can prove to be a success and to a certain extent you can find a strategy that fits your personality and interests, but you should also try to focus on lucrative markets that have a change of booming in the future. For 2019, experts estimate a growth of alternative investments, especially the ones below:
Also known as crowdlending, peer-to-peer lending, or P2P lending, emerged in 2006, with the launch of the first P2P lending platform, Zopa. Other platforms followed, such as Funding Circle and Prosper and now, this is one of the up-and-coming fields that has caught investors’ attention. The idea behind peer to peer lending is simple: on a specialized platform, people who need a loan submit an application and, based on metrics such as credit score and loan length, an investor can provide the loan. Although this option is not 100% risk free, the returns are generally considerable and lenders make an average of 9%. Another benefit is that peer-to-peer lending is maturing almost everywhere in the world and takes place in a regulated environment. The UK, the US, Canada, Israel, Australia and Latvia are great markets to tests P2P lending as an alternative investment strategy.
Fine art and rare collectibles
Investing in fine art is different from investing in traditional asset classes, which is why this strategy works best if you are an art connoisseur yourself. In the best cases, the rewards can be spectacular and you can make millions from investing in art, but you will have to keep in mind some general rules:
- Buying is easy, but selling is hard. When choosing what artworks to invest in, you need to be practical and channel your inner investor, not your inner artist. Don’t focus just on how beautiful a piece is, but also on how its value is expected to grow in the future. Insider knowledge is crucial.
- The fine art market is dominated by a few famous names that generate the most revenue. Investing in small artists is noble, but this strategy rarely pays off as much as you hope.
- Paintings are not the only art forms you should focus on. Rare photographs and vintage collectible items are worth looking into.
This alternative investment idea might have sounded odd for the previous generation of investors, but it is simply a result of socio-economic trends. According to Athene Li XIO Group, this is exactly the secret of a smart investment: forecasting trends and investing in them. In the US and Western Europe, the aging population is a demographic reality. For the first time, seniors outnumber children and teenagers. By 2040, the global population of those 65+ will reach 1.3 billion, double what it is today, and all of these seniors will require dedicated facilities, services and housing. Nursing homes are an area of investment, but not the only one you should consider. Other options include multifamily condos, gated communities for seniors, as well as biotech and technology-enabled medical services and devices.
In some countries, investing in the automotive industry is a strategy that rarely fails. In the United States, where people have an undying passion for old cars and an enthusiasm for new releases, investing in dealerships, service shops and automotive surveys can be a source of revenue. However, self-driving cars and electric vehicles are still considered illiquid investment, as the market is quite volatile.
If you want to make a profitable investment, but at the same time you would also like your contribution to impact an underprivileged community in a positive way, impact investments deserve some research. Formerly known as socially responsible investments, impact investments target mainly regions in developing countries and they provide return on investment once the region matures. According to Amit Bouri, managing director of the Global Impact Investing Network, investments “can be anything from sustainable agriculture to affordable housing, microfinance and things like access to clean water or renewable energy”.