But why? What makes alternative investments such a rapidly growing part of our economy, and an attractive addition to a modern investor’s portfolio? Why are some top investors and funds looking to alternative investments more than the stock exchange, when the markets have been reaching record highs over the last few years? As complicated as these questions may seem, their answers are much simpler than you might at first think.
To start, one of the biggest reasons that alternative investments have grown in popularity in recent years is because the internet and online marketplaces have democratized a lot of alternative investment markets and investment opportunities. One of the premier examples of this is real estate—which in the wake of the 2008 housing crash and the explosion of online housing sites like Trulia and Zillow, has made it easier for everyday people and more recently, hedge funds, to invest in real estate than ever before. In the case of cryptocurrency and online exchanges—a relatively recent development for the world economy and alternative investments—the combined market value has recently topped $3 trillion.
While cryptocurrencies in particular are typically seen as more risky as an investment, ironically alternative investments in general are currently associated with a reduced risk than the traditional stock market and higher gains. The incredible growth of the stock market has driven the entry price of investing higher than ever before, pricing out a lot of everyday investors. The stock market as well is forecasted in the coming years to have slowing returns when compared to alternative markets. When you factor in things like rising inflation and the perception from some that we are in the middle of a bubble in the traditional markets—it’s no wonder that investors, small and big alike, are looking towards alternative investments.
As sound as alternative investments may be for a lot of modern investors and firms—they may still not be right for you. This is especially true, if you are only looking for a quick return and don’t do your research. For every moonshot miracle, there are more cases of people losing money by making poor financial decisions because they don’t know what they are investing in and do not have a coherent, diversified investment strategy. Alternative investments are usually more difficult to liquidate in comparison to traditional investments like stocks, and are currently seen as more long-term safe haven investments even though—yes—they can have quicker, and often higher returns.
With all of that said, alternative investments and the industries around them are only expected to grow in the coming years. With all of these potential risks considered—which is inherently built into any investment, traditional or alternative—alternative investments in 2021 are absolutely worth considering when establishing or expanding your financial portfolio.
