Member Article

Are Alternative Investments a better option than stocks?

A diverse investment portfolio is essential for reducing risk when investing; a quotation from award winning specialists in discretionary investment management, Ramsey Crookall summarises this:

“to this day diversification has remained one of the most fundamental aspects of investment management whether for asset managers or private investors. In constructing a portfolio it is important not only to include assets that meet the portfolios objectives but also ensure the assets are suitably diverse. A well diversified portfolio should be able to provide a return from assets whose individual returns are largely uncorrelated and will therefore not all be simultaneously affected by a piece of bad news or a changing economic situation. An investment portfolio can, therefore, be seen as the optimisation of return and risk.”

An ‘Alternative’ investment is the general term for anything that is not shares, bonds, mainstream property or cash. Alternative investments, also known as ‘investments of passion’, have seen more attention since the credit crunch – possibly because they seem like a “safer” option.

Attitude survey respondents: themajority (60%) cited personal pleasureas their main reason for purchasing of alternative investments, however 22% did cite for capital growth or as a “safe heaven” as their reason for investment.

There is a wide variation across the the Knight Frank Luxury Investment Index.

Classic Cars demonstrated the largest gains, similarly to last year’s index results, with value generally up 28% over the year (2013).

Coins perform strongly despite being one of least widely collected investment types in the index with a solid 10% increase year upon year.

Stamp values are increasing, especially in key commonwealth markets such as India and China, for instance the value of collectable stamps rose 36% in China between 2011 and 2012 alone – marking this upwards shift in such markets.

The price of gold has continued to decline in 2014 after a 28% fall in 2013. However,gold prices are predicted to recover in 2015 due to the demand in China and India.

The art market saw a large peak in 2011 which it has not yet reached again, however, if the right piece is invested in, the most desirable pieces are still selling at a premium rate. Additionally, there is the option of ‘business angel’ investing, which essentially means you invest in smaller companies that are not quoted on the stock market. If the business fails, you won’t get your money back, but if the business prospers, you could make several times the amount you invested.

With alternative investments, as with stock investment, selecting the right to invest in is key. Considerable research is mandatory, so you really understand what you are investing in. If 2015 has continued low rates, then interest-bearing assets like bonds and savings accounts will be remain less attractive to investors. As appealing as alternative investments may be, they come with their risks just like anything else.

This was posted in Bdaily's Members' News section by Chloe Hashemi .