Alternative Investment is all about investing in funds which are not conventional like cash, bond, stocks, etc. This type of investment is particularly controlled by high net-worth and institutional investors. Some of the examples are hedge funds, real estate, managed funds, derivatives contracts, equity, and commodities.
More about alternative investment funds
These funds can have high-minimum fee structures as compared with ETFs (Exchange Traded Funds) and Mutual Funds. However, there are many added advantages too. Two of such advantages are explained below.
- It is good for hedging and diversification
This type of investment has a low correlation with standard assets that makes it suitable for diversification of the portfolio. Due to this characteristic, even the institutional funds like pensions and endowments have started to consider allocating a small portion, typically less than 10%, of their portfolios to such investments.
- It also gives tax benefits
Although the start-up cost, or you can say investment fees’ upfront, can be a little high, yet the transaction cost will be minimal as compared to conventional asset investment. Also, if someone invests for a longer period of time, it may give tax benefits as well. The duration generally is 12 months.
Four strategies of alternative investment for 2018
Alternative Investing is nothing but a mindset about specific investments. So, if you are well prepared to face the stock market of 2018, here are four strategies to follow.
- Plan absolute returns and focus on them: People invest to get more money than what they invested! Well, this is only possible when one has nicely researched the market before investing. So, one should start early and prepare an index of competing firms. The index must have the assets that are expected to surely outperform in the future.
- Have a proper know-how of the background of your investment: It is a well-heard fact that ‘Gone time does not come back!’ Therefore, before making an alternative investment, one should be sure that he has learned about ‘where the return comes from!’ One needs to have a proper knowledge about the factors that could affect the investment. One should keep rethinking your investment as the factors (which you have studied so far) change.
- Keep in mind the fact that risk is always multi-dimensional: Risk is multidimensional, and it could affect one’s investment in a way which nothing could. Therefore, keep an eagle eye on risks like Liquidity Risk and Drawdown that are associated with your investment. So, investors are suggested to make a list and keep a close eye on it.
- Diversify to have a free lunch of good returns: Diversification is an important factor which will balance the returns on Alternative Investments. One can also call diversification as risk mitigatory, since having a mix of all types of assets will keep the investment portfolio intact, even in the bad times of the Stock Market. So, all investors must diversify their Alternative Investments in 2018.
So, these were four strategies which investor can rely upon while making Alternative Investment in 2018.