How have your investments done over the last few years? Most people did not see the financial crisis coming and those that did probably didn’t realise the size of the impact. This means that everyone’s investments have likely to have performed poorly. Many others are in a similar situation and they are seeking alternative investments for wealth preservation.
The reason that people are looking for alternative investments is that returns aren’t really correlated with the returns on normal assets. This means that when we have financial events like we have had recently, your entire wealth doesn’t take a hit. There is a level of further diversification in there which helps to protect you.
Why is it important to diversify? Traditional investments like stocks, cash and property have all performed badly over the last number of years. The stock market has performed poorly for even longer as it is lower than it was 10 years ago. Even if you hold cash it is likely to be losing its value in real terms.
Alternative investments are not the be all and end all (not by a long shot). Investments in stamps, antique furniture and works of art can go wrong. It is something that you need to keep in mind.
The biggest disadvantage is the stock market’s big advantage… liquidity. It can be risky investing in a market with a lack of liquidity because even though the asset might have risen in value you may not be able to sell and lock in the profits when you want. You might not be able to offload your items when you want if there are no buyers to buy.
A small market place with a lack of participants means that it is difficult to establish proper prices. You will also struggle to get reliable data about old prices so that means you have to try and determine a fair price yourself. This can be hugely subjective and prone to errors. If you do it well though there can be huge potential in alternative investments.
Would you like to learn more about alternative investments strategies? If yes then you can find out more by going to Dave’s blog. There you will find all advantages and disadvantages of investing in alternative investments.
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