Blog Investing What are alternative investments? Definition, Types, Examples

What are alternative investments? Definition, Types, Examples

date November 11, 2020 time 5 min read

Finding the right investment can be tough, especially when traditional investment avenues aren’t offering the same interest rates they used to. Fortunately, recent developments in technology have provided new opportunities for alternative investments. Read on to discover how alternative investment options can allow access to higher interest rates without compromising security.

Did you know you earn interest on your savings at most bank accounts? Maybe you did, but today it doesn’t seem to mean much.

For most of us, interest on our savings doesn’t add up to much more than an extra dollar or two at the end of the year. But it wasn’t always this way. Interest rates on traditional investments these days are simply lower than they used to be.

If you want to earn decent interest with less risk you may need to branch out into alternative investments.

This is a guide to alternative investment trends that may offer higher interest rates to savvy investors like yourself.

The best alternative investments to the stock market today include some surprising options
The best alternative investments to the stock market today include some surprising options (source: wannapik.com)

What is an alternative investment?

In a nutshell, alternative investments are financial assets that do not fall into conventional investment categories.

Conventional investments include investments like savings accounts, stocks, and bonds, CDs… the investments you’ve probably already heard of.

The different types of alternative investment

Alternative investments typically fall into two categories. Private assets and hedge funds.

Hedge funds

Hedge funds rely on an investment company to invest money in alternative investments on your behalf. The aim is to beat the rate of inflation and provide a hedge against unforeseen market changes.

The problem with hedge funds is that they are often considered to be secretive and largely illiquid. Hedge funds are exempt from many disclosure requirements and have a reputation for closely guarding their trading algorithms. 

Usually, only accredited investors can get in on hedge funds. But some major funds like Blackrock let you invest in their fund as a stockholder through a broker.

Private assets

Alternative investment types that fall under private assets are the majority of options available to the “average joe” investor. These include any asset privately owned by an individual. Typical examples include gold and valuable metals, art, collectibles, and private real estate.

Wine has been a major alternative investment for centuries
Wine has been a major alternative investment for centuries (source: pikrepo.com)

The advantages of alternative investments

There are many reasons why top investors are moving away from traditional investments and towards alternative investments. Some of the key advantages of alternative investments include:

  • No/fewer middlemen. By cutting out the middle-man, you can enjoy better earnings without the maintenance fees.
  • Higher interest rates. Because many alternative investment markets aren’t highly saturated or regulated yet, there is tons of extra interest to be earned.
  • Easy access. With the advent of the internet and online finance, alternative investments have become accessible even with limited knowledge of the market.
  • Opportunities for ethical investing. There are many alternative investments you can make to do something for the world. For example, investing in sustainable energy and community improvement.
  • Diversification. The numbers of alternative investments are limitless today, and the internet has given every investor access to a global market.

Alternative investment risks

As with any investment, alternative investments come with their own set of risks. These are some of the alternative investment risks to consider when making a decision.

  • Alternative investments are often illiquid. If you invest in private real estate, for example, there can be complications should you decide to cash out on your investment. Collectibles, like baseball cards, only hold value to a handful of individuals who think they are valuable.
  • No insurance. When you invest with a traditional financial institution like a bank, your investment will be FDIC insured. This is not typically the case with alternative investments.

Some examples of alternative investments

Peer-to-peer (P2P) lending

Due to exciting advancements in blockchain technology, many top investors now consider P2P lending to be one of the hottest new forms of alternative investment. 

Peer-to-peer lending is an innovative new way to lend money earning interest rates up to 300% higher than the rate of inflation

P2P lending platforms connect investors directly with borrowers who need a loan. Borrowers either put up collateral to secure their loan or are assigned a risk rating by the platform in a process similar to credit scoring. They pay interest back directly to the lender.

Top platforms include MyConstant, LendingClub, and Nexo.

Real estate

One of the most obvious alternative investment strategies is real estate. Investing in real estate opens up a nice opportunity to generate long-term returns via passive income.

Real estate tends to persevere in value even when the market takes a downward turn. This makes it a good way to diversify your portfolio as a means of safeguarding your investment.

Don’t have enough money to buy a house? Look into more cost-effective options like REITs and real-estate crowdfunding.

Real assets and commodities

Real assets and commodities refer to physical objects you can own. These include land, gold, and precious metals in addition to collectible goods like wine, art, or jewelry. 

Real assets make good for good alternative investments as their value typically increases over time (though often slowly). That said, certain assets like collectibles may only be valuable to a specific group of people. Lower liquidity sometimes means lower real value.

Cryptocurrency

Cryptocurrencies (or crypto) offer great potential for high returns and have been sweeping the markets – and the news cycle – for quite some time now.

Cryptocurrencies typically follow different trends to the overall market and are likely to stay strong even when the stock market falls. While crypto has been an extremely volatile investment for the past couple of years, it has seen increasing adoption. Many P2P platforms, like MyConstant, have found a use for it as collateral to hedge against loans.

The rise of cryptocurrency in alternative investment trends has had a lot to do with its recent price increase
The rise of cryptocurrency in alternative investment trends has had a lot to do with its recent price increase (source: pixabay.com)

Strategizing your alternative investments

The name of the game for alternative investment strategy is diversification. Because alternative investments can be a bit off the beaten path, it can be more difficult to stay on top of the market. Unforeseen vineyard deaths in France could easily wreck a bluechip wine portfolio. Someone discovering a warehouse full of rare baseball cards could wreck that card collection.

It’s always best to keep the majority of your funds somewhere you know you can count on and test the waters with a small percentage of your savings.

Dive into a world of alternative investment with MyConstant, earn up to 9% APY

When you invest with MyConstant, you can access higher interest rates without the risks of market volatility.

When you invest in our crypto-backed loans, for example,  you lend your money to crypto holders across the world for returns of up to 7% APR. All loans are fully secured by collateral so you don’t need to worry about losing money in a default.

Already have crypto? You can invest your spare BNB, ETH, and BTC in decentralized exchanges for up to 9% APY with our Crypto Lend feature.

Interested in crypto but don’t know how to buy? On MyConstant you can easily trade USD to popular stablecoins like USDT and get in on the action in minutes.

Join the rise of new investors choosing alternative investments. Sign up for a free account and start doing more with your money today.


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