Traders and investors are increasingly turning to alternative investment options to diversify their portfolios and seek new avenues for potential returns. In this FXOpen article, we discuss alternative investments, examining the types and explaining the reasons why they are gaining traction.
What Is an Alternative Investment?
Alternative investments deviate from conventional stocks, bonds, and cash, presenting investors with a diverse range of opportunities characterised by the nature of the assets and the unique market dynamics they inhabit. These alternatives can be broadly classified into tangible assets like real estate and art and intangible assets such as private equity, hedge funds, and cryptocurrencies*. This dual categorisation introduces a distinctive dimension to portfolio construction, allowing investors to strategically blend tangible and intangible assets for a well-balanced and diversified investment strategy.
In contrast to traditional investments traded on public exchanges with comprehensive regulatory oversight, which typically offer lower volatility and moderate returns, alternative investments, operating in less liquid markets, hold the potential for higher returns but require specialised knowledge and careful attention to regulatory considerations, contributing to their increased complexity and risk.
Alternative Investment Types
For each alternative investment type, investors must consider their personal investment objectives and risk tolerance, as each of the assets discussed below has its specifics.
Real Estate
Real estate is a tangible alternative investment class, providing investors with exposure to potential price appreciation and a steady rental income, whether through direct ownership or Real Estate Investment Trusts (REITs). Real estate investments necessitate a long-term outlook, require significant upfront capital, and are also susceptible to market conditions.
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