Alternative investments: what are they & how can I invest?

Wine is not just for drinking. Art isn’t just for admiring. If stocks and shares don’t spark your interest, there are more exotic ways to generate returns over time – so long as you know what you’re doing.

Discover more about the world of alternative investments below.

What are alternative investments?

An alternative investment refers to a financial asset that lies outside the scope of conventional investment categories, such as stocks, bonds, and cash.

Within this diverse class, various unconventional assets can be found, including private equity or venture capital, hedge funds, managed futures, art and antiques, commodities, and derivatives contracts.

Notably, real estate is also frequently categorised as an alternative investment.

Exploring alternative investments

Anything that can hold or increase its value over time can be a suitable investment.

When looking at investing in physical objects (e.g. antiques), the challenge is identifying which ones will do this most effectively, and which ones will fail to achieve a good return (or even depreciate in value).

Usually, it requires specialise expertise to make such a judgement call, which is why many investors in a particular asset (such as wines) are also experts in that field.

You can learn more about how to start investing in wine in this handy guide.

There are vibrant markets for all kinds of niche investments, ranging from antiques to jewellery, art, photography, wine, classic cars, and collections of rare items such as coins, stamps or musical instruments.

However, the easiest mistake a novice can make is assuming something will be a good investment just because it is old, rare or attractive.

If you are not an expert in that kind of asset, either ask someone who is (whom you trust) or steer clear.

Why invest in alternative assets?

Investing in something like art or antiques may have a greater attraction for some people, in that they can physically own the assets and derive pleasure from them in the meantime.

If the painting (or whatever) fails to provide an investment return, or loses value, then the consolation is that you still have that painting as a treasured possession.

This is another reason why it’s good to have a passion for the thing you’re investing in.

Not only will it make you more knowledgeable and a better judge of worth, but it will also make the venture worthwhile even if you don’t achieve the hoped-for returns.

Remember that alternative investments can be highly unpredictable, gaining or losing value rapidly if fashions and tastes change.

They can also be physically destroyed in accidents, so insurance is a must.

The volatile nature of these assets means they should only ever form a small percentage of your overall investment portfolio – never rely heavily on them for your future income.

What are some of the best alternative investment options?

We've already mentioned a few possible alternatives above, but there are a wide array of options to consider.

Here are some of the best alternative investments to consider:

• Art
• Wine
• Private equity funds
• Venture captial
• Hedgefunds
• Commodities
• Property
• Peer to peer lending
• Crowdfunding
• Startups

Investing in specialist funds

You don’t have to own assets directly to invest in them.

You can also invest in funds that specialise in those types of assets.

Although you have less control in a fund, and don’t get to own the assets physically, this method does offer a few advantages.

One benefit is that a specialist will choose the assets, and your money is generally more diversified across assets within that market.

Investing in a fund can also be more accessible, as the minimum investment is often lower than the cost of buying the assets outright.

This makes it a less risky prospect, especially for beginner investors or non-experts.

How can I get started?

If you are interested in alternative investments, talk to your financial adviser first.

Although most IFAs are not qualified to give specific advice on such investments themselves, your adviser will be able to discuss your goals and suggest how much of your portfolio could comprise alternative assets.

They may also be able to point you in the direction of trustworthy experts or fund managers who can help you.