Bored of the usual investment vehicles such as stocks, ETF (Exchange Traded Fund), bonds, unit trusts, robo-advisors, properties and the rest? Looking for something else?
With alternative investments, there are plenty of other options that you can consider to invest in. But just like any other investments, don’t just go
diving in without first taking the time to understand what it’s all about.
Warren Buffett reminded us that we must not invest into something that we don’t even understand. Otherwise it will be just like gambling, rather
You have to know yourself first, know your risk tolerance, know how much capital that you can invest, whether it is a lump sum or you can invest every month. With this knowledge in hand, you will be able to sleep soundly at night. Because you then understand what investment is all about, the risks involved, and the potential return from the investment over the years.
Why Alternative Investments?
Normally an individual will start looking for alternative once he or she have exhausted the current options. Which usually means that the person
have already invested in traditional investment vehicles such as the stock market, unit trusts and properties. It is mainly a strategy to further diversify their investment portfolio.
Or it could also be that the current investment options that are available could be the investment horizon is too long or the potential returns are not
high enough. There’s no stopping you from going for alternative investments, as long as you know what you are getting yourself into.
What Is Alternative Investments?
One of the popular alternative invesments is peer-to-peer (P2P) financing. It allows entrepreneurs and small businesses to unlock capital in small amounts from a pool of individual lenders. It means that you can borrow money without having to go through a bank.
There’s also equity crowdfunding (ECF) which is an innovative form of alternative fundraising that allows small businesses to raise capital from
the public. As you may have noticed the word equity here, this means that the investors will get some equities, which effectively makes them
shareholders of the company.
Both P2P and ECF are alternative sources of funding that offer access to fi nancing to the micro, small and medium enterprises. They disrupt the traditional banking system by enabling businesses to obtain capital from a pool of investors via an online platform.
The key difference between P2P financing and ECF is that in ECF, you become a shareholder of the company that you invest in.
Of those considering alternative investments, cryptocurrency is currently gaining attention as the most popular asset class. It started with the birth of Bitcoin in 2009, and it has also been referred to as digital gold.
Last year Bitcoin’s performance outperformed every other asset classes and was the biggest winner, however this year, the crypto market comes
crashing down. From its height of US$69,000 in November 2021, to the low of US$17,500 in June 2022, it is defi nitely not for the faint hearted.
Then who could forget how Luna (one of the top 10 cryptocurrency at the time) lost almost 100% of its value in just a few days time. It sent shockwaves through the market and this leads to panic all over.
High Risk High Return
We all heard of the concept, ‘high risk high return’. One of the reasons that alternative investments are gaining popularity, is on the high return aspect of it. But are you willing to take the risks associated with it?
High risk investments can be a part of your investment portfolio as it can help grow your wealth. However, it is crucial to understand the existing
risks involved and decide whether it is aligned with your investment objectives. Finally, remember not to put all your eggs into one basket to ensure
you minimise risk to your capital.
Do take note that your risk profile, commitments and requirements may also change throughout the years and you may want to adjust your investment portfolio and exposure to high risk investments accordingly.