Listing the 7 Best Alternative Investments for Your Portfolio

Alternative Investments may be a familiar term, but since it is such a broad term it is difficult to know what exactly classifies as an Alternative Investment.  Without being able to define an Alternative Investment is, it would be rather challenging to determine the best Alternative Investments or even if this broad swath of investment opportunities are right for your portfolio.  Let’s review what an Alternative Investment is and then get into the 7 Best Alternative Investments for your investment portfolio and 1 To Avoid.

What are Alternative Investments?

Technically, an Alternative Investment is an investment in an asset or instrument that is not fixed income, cash or equities.  The term ‘cash’ is a bit loose in definition because it could be interpreted to include the FX Market, but it is not.  Typically, investors sitting on cash are earning interest with the bank or financial institution that is holding the deposit.  This is cash held in a single currency without any sort of exchange element to it.  Cash can include term deposits and savings accounts.

The CAIA Association (Chartered Alternative Investment Analyst Association) breaks out their Level I Exam and Level II exam into the following format.

This provides a level of understanding how the issuer of a globally recognized finance credential defines what would be considered an Alternative Investment, but this is limited to investments made on an institutional level.

With this said, here are the 7 Best Alternative Investments.

1.  Real Estate

Real Estate encompasses residential, commercial, industrial or land use purposes.  They are zoned differently based on the locality.  There are options with Real Estate whether they be wholesaling, flipping, leasing, subletting, Airbnb-ing, Real Estate Investment Trusts (REITs), or entrepreneurial ventures like farming or development.

2.  Venture Capital

Not all Venture Capital experiences are the same and not all Venture Capitalists have the same approaches.  Investing in small, early-stage startup companies is an Alternative Investment that is common for High Net Worth individuals and Venture Capital firms that have portfolios of startup investments.

The upside to Venture Capital is equity in a company that can reach a substantial valuation that would result in a return on investment that almost never is matched in the equities market.

The downside to Venture Capital is that it is still a rather speculative investment with a company that could fail due to a host of reasons.

3.  Entrepreneurship

Not everyone should be an entrepreneur and start their own company, but there are different options based on the level of risk-aversion and comfort with the market.  Entrepreneurs can own multiple companies or just one company that is their baby.

Entrepreneurs build up to sell.  From products and services to the entire company, everything is built for the purposes of generating revenue for the ownership.  The ownership put the investment capital into the companies that they founded or invested into and with success enjoy the fruits of their labor.  However, this is a concept that may be outmoded with younger generations as Socialism and Communism have significantly grown in popularity and the rate of new businesses being formed in the one of the most robust economies falling significantly.

In the United States and European Union there may be declines in entrepreneurship by choice and circumstance, but there is growth outside of these regions.  It is why many from the Anglosphere and from the Western cultures have moved to Latin America and Southeast Asia.  Lower taxes, better weather, purchasing power, and accommodating host cities and nations have attracted many individuals under the age of 40.

4.  Commodities

There are different ways to approach this as a part of an Alternative Investments Portfolio.

• Buying physical precious metals.
• Hedging purposes – Good for agricultural businesses.
• Speculating on the CFD (Contracts for Difference) or Futures Market

It all depends upon your time frame, objectives, type of business or non-business, risk aversion level, and economic sentiments.

5.  Options

Options are a good way to reduce risk, but they are also a way to generate large returns and execute rather flexible strategies.  When executed properly, it can result in profits.  However, when executed improperly it can result in unlimited losses that go beyond what is in your initial investment.  Selling a Call (a Naked Call) can make this sort of awful outcome happen.

6.  FX Market

When done properly, trading in the FX Market is a great Alternative Investment.  When done improperly (as most retail FX traders do), this is a bad trip to the local casino.  The best way to approach the FX Market is by doing the following:

1. Diversifying strategies and allocating funds into different sub-accounts
2. Having trades run 24/5 on an automated basis.
3. Create your own strategies and go through the whole testing process (backtesting and forward testing).
4. Incorporating your own strategies and/or the strategies employed by Managed Forex Funds into a portfolio.

The worst way to trade in the FX Market is how gurus, course providers, and even brokers teach it:

1. Manual trading.
2. No diversification.
3. Untested methods.

Yes, the FX Market includes Cryptocurrencies.  Privatized and Sovereign Currencies make up this market.

7. Hedge Funds

Hedge Funds invest and trade using different strategies, but it encompasses all markets.  Hedge Funds charge performance fees and management fees.  They are only available to investors with High Net Worth.  They take on higher risks for clients looking to make large gains and attain excess returns (alpha).

Not all hedge funds perform very well or even beat the market, but the best performers make their clients very happy and they are rather happy with the fees that they collect.

AVOID THIS ALTERNATIVE INVESTMENT:  Fine Art

There you have it, the List of the 7 Best Alternative Investments to consider for your Alternative Investment Portfolio.  Alternative Investments should be a smaller portion of your portfolio as they are more speculative in nature, but they are important to consider.

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