We’ve heard the infamous proverb ‘don’t put all your eggs into one basket’ echoed in both professional and personal environments, which warns people against risking all their success on one venture. After all, if something or someone were to jeopardise this success, you’d lose all your ‘eggs’, making it more challenging to recover.
To decrease this risk, it is essential that you spread out all your assets – also known as portfolio diversification in the world of investing. Diversification is critical to managing risk and maximising returns in today’s ever-changing investment landscape. While traditional asset classes such as stocks and bonds play a vital role in any portfolio, savvy investors understand the value of exploring alternative investment options.
These alternative investments offer opportunities for diversification, potentially higher returns, and a hedge against market volatility. To help you start spreading out all your assets, we’ve created this comprehensive guide that will explore five alternative investment avenues to help you diversify your portfolio and achieve your financial goals.
From investing in precious metals and real estate investment trusts to taking advantage of peer-to-peer lending platforms and impact investing – keep reading to discover several new ways to expand your investment portfolio.
Contents
Real Estate Investment Trusts (REITs)
Real estate has long been a popular alternative investment choice. However, direct real estate ownership requires substantial capital and effort. Traditional property investments can be a hassle between vetting tenants and property upkeep.
However, by investing in REITs, individuals can gain exposure to the real estate market, enjoy potential rental income, and benefit from property value appreciation without dealing with any of the above worries. REITs own, operate, or finance income-generating real estate assets, such as office buildings, shopping malls, or residential properties.
Additionally, some REITs specialise in specific sectors, such as healthcare or industrial properties, allowing investors to target specific areas of interest. Alternatively, they allow investors to spread their interest over several areas, such as residential and healthcare, or two other sectors to diversify their portfolios further.
Peer-to-Peer Lending
Another way investors can spread their assets is through peer-to-peer lending, which aims to match lenders with borrowers using online platforms or offline brokers. They have gained significant traction in recent years, revolutionising the lending landscape, since they effectively cut out the middleman (banks etc.) since lenders don’t have to involve traditional financial institutions.
Peer-to-peer lending offers an opportunity for investors to earn attractive yields while providing access to credit for borrowers who may not qualify for traditional loans. The lending process is facilitated through online platforms that match borrowers and lenders based on predetermined criteria.
All the interested party has to do is answer a couple of questions about how you intend to use the amount of money you’re borrowing, like how much you need to borrow and how long. Using this information, you will be matched to a lender and could receive the desired amount in as little as a few days.
Investors can fund loans partially or entirely, diversifying their investment across multiple borrowers to spread risk. However, it’s crucial to carefully evaluate the platform’s risk management practices, borrower profiles, and interest rates to make informed lending decisions.
Precious Metals
Investing in precious metals is one of the most popular ways to diversify your investment portfolio. Although popular previous metals like gold and silver are no longer used as currency, their value has remained, making them a hedge against inflation and geopolitical uncertainties.
Investors can gain exposure to precious metals through physically owning bullion or investing in exchange-traded funds (ETFs) that track the value of these metals. The choice between physical ownership and ETFs depends on factors like convenience, storage considerations, and accessibility to the underlying assets.
Physical ownership gives investors direct control over their holdings and potentially benefits from increased value over time. ETFs offer a more liquid and easily tradable investment vehicle, representing fractional ownership of a larger pool of precious metals. Additionally, some investors may opt for numismatic coins, which hold historical or collectable value in addition to their intrinsic metal worth.
One of the most well-known and popular forms of investing in precious metals is gold. Gold has been regarded as a store of value for centuries, and its timeless allure continues to attract investors seeking stability and diversification.
If gold is something you’re looking to buy, there are several considerations you should make first. You can learn more by visiting the sites of specialist gold bullion dealers like Physical Gold, who buy/sell bullion and produce informative guides about investing in it. Consider visiting their website to learn more, or contact them directly for specific inquiries.
Cryptocurrencies
Anyone with a Twitter account knows how popular digital coins have become. With Elon Musk’s tweets creating waves in the crypto world, it wasn’t long before digital currencies such as Bitcoin and Ethereum captured investors’ attention worldwide. These digital assets operate on blockchain technology, offering decentralisation, transparency, and the potential for high returns.
Investing in cryptocurrencies can be highly volatile and speculative, requiring careful consideration of risk tolerance and thorough research. However, for those who navigate the complex crypto market, cryptocurrencies can provide diversification and exposure to a rapidly evolving asset class.
Investors can purchase cryptocurrencies through digital currency exchanges, store them in secure digital wallets, and track their value through online platforms. Doing so can offer several benefits, such as faster transaction speed, increased online shopping anonymity, protection against inflation, and much more.
While the success of any cryptocurrency investment isn’t guaranteed, providing that you make well-informed investment decisions about the different kinds of cryptocurrencies, stay informed about regulatory developments, and keep updated on the best security practices/market trends is essential to be rewarded over the long term.
Impact Investing
Impact investing allows investors to align their financial goals with social and environmental values. This form of investing seeks to generate positive social or environmental impact alongside financial returns.
Impact investors actively support companies, organisations, or funds that address pressing global challenges, such as climate change, poverty alleviation, or healthcare access. Impact investing can be pursued through various avenues, including sustainable funds, social enterprises, and community development projects.
Sustainable funds focus on investing in companies demonstrating strong environmental, social, and governance (ESG) practices. Social enterprises aim to create positive societal change, often in underserved communities.
Community development projects involve investing in local infrastructure, affordable housing, or renewable energy initiatives. Impact investing allows individuals to make a difference in the world while seeking financial returns.
Closing Thoughts
Diversifying your investment portfolio is crucial to mitigating risk and achieving long-term financial success. Exploring alternative investments offers an opportunity to diversify beyond traditional asset classes and potentially enhance portfolio performance.
Real estate investment trusts (REITs) provide exposure to the real estate market without direct property ownership. Peer-to-peer lending platforms allow investors to participate in lending activities while earning attractive yields.
Cryptocurrencies offer the potential for high returns but require thorough research and risk assessment. Precious metals provide a tangible asset class as a hedge against economic uncertainties.
Impact investing allows investors to make a positive impact while seeking financial returns. By incorporating these alternative investment strategies into your portfolio, you can build a well-rounded investment approach tailored to your financial goals and risk tolerance.
