Many investors across the world are no longer happy to play by the old-school rules of the stock and bond markets. Many seek alternative ways of doing business, purchasing consumer goods, planning for retirement etc. There are dozens of reasons, many of which are related to frustration with the stock and bond markets’ low returns and volatility. Many investors also prefer “hard” assets such as metals, property, works of art and other tangible objects. Yet, the value of an alternative investment is much greater than that.

Historical stock market returns over the past 75 years can be daunting for individuals who want to earn more than a few mischievous percentage points on their hard-earned money. Although many alternative investments have high-risk profiles, they do tend to offer generous potential returns, often between 50% and 100%. Investors have been sick of stock, bonds and conventional funds’ “same old, same old” choices. The notion of modern, creative places to invest has drawn the attention of those looking at vehicles like precious metals, rare wines and collectible cars as a way to break out of the mold and find fresh ways to earn strong returns on capital invested.
Some alternative investments include direct exposure to sectors such as precious metals and art, both of which have a long record of growth during times of inflation. Indeed, during inflationary cycles, most of the so-called “hard asset” categories tend to outperform stocks and bonds. Alternative investments provide an ideal way for a portfolio to diversify. Even those who want to maintain the majority of their stocks and bonds are looking to alternatives as a way to diversity. In addition to gold and other precious metals, jewellery, wine and rare stamps are some of the preferred option for diversification. Investors who fear, now or in the distant future, a market crash often turn to non-traditional security options. With one crash, stock markets and securities can be wiped out because all the money is on paper, with accounts that are not backed in most cases by strong, real assets. Alternative investments are an excellent way to protect investors from a potential market downturn.

Alternative investments often have the potential for a higher return rate, which can improve overall portfolio performance in the long term even if the stock market performs poorly on its own. Historically, many alternative investments were only open to institutional investors and the very rich, but today there are options for investors of all kinds. Nevertheless, the risks often increase with the added profit potential. Maintaining a balance between risk and reward is important, and this is easily managed by some alternative investments. Generally allocating 10–20% of a portfolio to alternative investments is most appropriate, although the allocation can be higher in unique situations. This is a large enough allocation to be impactful in terms of enhancing returns or helping to reduce risk, without being so large that it dominates the overall portfolio.

Now that you know what alternative investments could offer to you and your investment portfolio, all you need is to do thorough research and find the one that suits you. Diversifying your portfolio is imperative if you don’t want to fall victim of a sudden market downturn.