Alternative investments are unconventional investment assets such as cryptocurrencies, private equity, forex, crowdfunding, gold and precious metals. These are considered out of the mainstream of shares, bonds, unit trusts, and property investments.
Why (or Why Not) Alternative Investments?
Alternative investments can provide better returns than traditional investment assets although subject to significantly higher volatility and risk. Investors may also have specific knowledge or passion in specific alternative investments and enjoy the community that is in a particular niche. However, alternative investments can be complex, lack transparency and efficiency, and carry higher risks.
Types of Alternative Investments
Bitcoin (BTC) is an independent digital currency capped at 21 million (21,000,000) units without a centralized intermediary party (such as the Treasury or banks) to manage the transactions. Contrary to what it is called, bitcoin values are just numbers. It is the same when you check your bank account balance online – what you see on the screen is just a representative of the amount of cash you have with the bank, as stored in the bank’s centralized database. In banking terminology, the database is the bank’s ledger but for bitcoin, it is called the “blockchain”. (Read more)
Forex trading is to exchange one currency for another in the expectation that the price will change. Forex trading involves simultaneously buying one currency for another (unlike other investments like shares where you must wait for a matched price between a buyer and seller). All Forex trading is done in pairs between two currencies. Currencies are usually priced to four decimal points where the smallest trading point percentage is known as a pip. Currencies move up and down affected primarily by supply and demand. Information including interest rates, economic data, geopolitical factors, and positive/negative news affect currencies. Forex trading costs are determined by the bid (buying) – ask (selling) spread (price difference). (Read more)
Gold and precious metals
Gold is a precious metal that has some ornamental and industrial use. Historically, gold was used as a form of currency until in the 1970s when the United States followed by other countries unpegged currency from gold transitioning to a fiat currency system. Gold today is a commodity driven by supply and demand and subject to speculation. (Read more)
Crowdfunding and P2P Social Lending
Crowdfunding allows investors (the crowd) to invest in early-stage entrepreneurial opportunities and gaining an equity stake in a company. Peer-to-peer Social Lending (or marketplace lending) disrupts traditional banking with FinTech. P2P lets small businesses and entrepreneurs obtain capital (borrowings) from a pool of investors via an online platform through an investment note. (Read more)
Private Equity (PE) is a type of alternate investment consisting of investing in equities in a company that is not public listed (not traded on stock exchange). The motivation or purpose investing in PE is to achieve positive returns on investment (ROI). Funds are raised from shareholders to be invested. PE investment duration typically is from two to seven years. (Read more)
Collectibles are things which have value in the eyes of others such as art, wine, and even toys like Lego. However, collectibles are difficult to value and highly illiquid making it not a choice for most investors unless it’s a collectible you are very passionate in.
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