Investing has always been challenging—especially in an economic shift due to crises or pandemics. Nevertheless, investing in bonds, stocks, gold, and mutual funds hasbeen atthe top of the list for most financiers, CFOs, companies, and other financial bodies. Thesehave been some of the safest and most profit-driven investment options for decades.
Despite all these investment options, investors are frequently discouragedbythe warnings aboutnot diversifying their portfolios. This iswhere alternative investment opportunities
come in. It is another interesting investment asset category that exists beyond traditional investment options.
If CFOs andbusinesses arelooking forward to diversifyingtheir investment portfolio, then they must consider alternative investment assetsin detail. Alternative investments represent diversification and often act as a buffer against volatility in trading.
Therefore, when it comes to making decisions over investing in an alternative asset that could be advantageousfor the portfolio, the following must be considered:
Liquidity of assets
Investing time horizon
When deciding about alternative places to invest in, prioritizing these considerations will protect you from falling into scams and get-rich-quickly schemes. Instead, alternative assets will focus on legitimate investment schemes to prosper.
So, if CFOs and companies are looking for the best alternative investment options in 2022, this article has selected five types of legitimate alternative investment options predicted to prosper capital in 2022.
Top Five Alternative Investment Options to Consider in 2022
Small businesses or start-ups are one of the best alternative investmentoption. Ithas the potential to produce the highest returns on capital invested. However, some companies or start-ups may have sluggish growth in valuation and revenue, but investing in them will probably get you steady income after some time.
As businesses are adapting to the virtual platform
, the return on investment can be even more profitable than the cost reduction in business infrastructure. These include consulting, IT, digital, educational institutions, and others.
The best way to invest in small businesses or start-ups is by investing a small share of capital into a particular business segment. It could be in partnership, becoming a shareholder, stakeholder, or financer. In the future, this approach could save you from some sleepless nights. This will help you to create a legitimate alternative assetwiththe desired returns in the end.
Since 2020, the cryptocurrency market has had a profitable valuation and is now becoming a prospering source of investment. As a result, cryptocurrency is being adopted widely and is becoming increasingly favorableas an alternative investment option.
has the potential to create a robust investment strategy that could last far into the future. Crypto-based investments and returns will vary depending on how you choose to invest in cryptocurrency. One way to go forward with investing in cryptocurrency as an alternative investment option is to buy the stocks of a company that deals in blockchain technology or in firms that mine cryptocurrency. Another way is by investing in cryptocurrency as an underlying asset. This includes Bitcoin and Ether futures trade on the CME.
To emphasize,blockchain-based technologies are essential because they are getting wider acceptance as alternative investments. For example, in May 2021, Goldman Sachs declared Bitcoin and other digital currencies a separate alternative asset category for their current and potential investors.Therefore, having crypto-based alternatives in your portfolio depends on your risk-taking capacity and a strategic approach with transparent goals.
Capital investment in private companies or public exchange bodies like the New York Stock Exchange intensifies alternative investment options. If you are planning to focus on investing in private equity, then there are some subsets that you must consider. These are as follows:
Venture capital (focusing on start-ups and early-stage ventures)
Growth capital (focuses on mature companies)
The best part about private equity companies is that they often provide more capital to the firms they invest in. For example, Cruise Automation is known for developing self-driving vehicle technology. It was developed through equity funding, and later on, General Motors acquired it in 2019 and turned out to be profitable for investors. Hence, it’s evident that private equity is also one of the best alternative investment options to get returns in the future.
Real Estate Investment Trusts (REITs)
REITs are part of a company that owns and manages real estate on behalf of a group of investors looking to earn capital. Due to its legal structure, REIT is gaining popularity
among other alternative investment options.Corporate tax is not payable on the rental income earned from properties under RETIs. Instead, only shareholders pay those taxes. That’s one of the best benefits of choosing REITs for your portfolio of alternative investments.
You also get the opportunity to purchase REITs on the stock market,similarly to how you do for other companies or equity. Dividend paying REITs may be the best option if you want a consistent income from your investment. You might also consider non-market-listed REITs from private companies like Streetwise, a real estate investing company. The company has a stellar track record of public REIT dividend payments. The company leverages the best-performing property investments into professionally designed portfolios.
Therefore, investing in REITs is profitable at low effort and is a long-term income strategy. That being said, you’ll need some time to analyze various companies that invest in real estate, and could beprofitable in the long run. On the contrary, the risk could be that if you are not aware of the procedure to invest in this alternative option, you might lose money. It’s said thatstocks and prices of REITs can fluctuate in a short time and may cause volatility in your portfolio.
Peer-to-peer lending continues to grow as a secured alternative investments option after legacy investment options before. But still the new ones are termed to be expensive investment opportunities. This investment option is as simple as it sounds.It involves investing capital on a platform that lets others borrow money. In this process, your money is paid back in small investments with your original cash at a profitable interest rate.
While peer-to-peer lending is a valuable investment option, it is advisable to be cautious abouthow you go about allocating your loanable funds under P2P lending investment. If you are considering it, check for a trusted lending platformto faithfully manage your alternative investment funds.
What’s Driving the Surge in Activity in 2022?
is happening across different sectors and markets. The financial industry is one of them, leveraging technology to offer sustainable investment funds similar to alternatives. Back in 2015, most financial companies were limited to the SaaS (software as a service) and mobile space. These days, technologies like blockchain, data analytics, machine learning, automation, and AI are creating innumerable opportunities in finance than ever before. As a result, financial businesses are modifying their technology base in an effort to remain focused on long-term growth objectives and stay ahead of the curve.
“As data and technology continue to play an increasingly important role in investment decision-making, the methods used to extract value fromboth structured and unstructured data will becomeincreasinglymore sophisticated.”
GARY BROUGHTON, Head of DataScience, Preqin
How financial managers are benefitting from the use of technology in their operations:
Fundraising - 45%
Portfolio management - 51%
Investments - 53%
Fund operations - 62%
Rising Capital Valuation
Today, numerous financial companies are raising more capital at higher valuations. A study by Deloitte shows that emerging financial markets will account for more than 50% of total growth in GDP in the next twenty years. As a result, the market is likely to account for more than 50% of alternative asset growth.
“As the industry has continued to grow, wehave seen a rise in the source of capitalfrom funds of funds. Companies have become moresophisticated and looking forward to making moredirect fund commitments to reduce their costbase and manage their portfolios.”
GIANLUCA D’ANGELO, Head of EMEA, Eaton Partners
Investing in stocks and bonds
should never be the only investment option to consider. However, if you want to increase or diversify your rewards, then considering the above alternative investment options will help boost your capital venture and portfolio in 2022.
In fact, alternative investments offer superior portfolio diversification and diminish overall risks. Another benefit of alternative investment is thepotential for higher returns to be earned. So, before you invest, it is advisable to thoroughly evaluate the options available.
Frequently Asked Questions
Why should you invest in alternative investments?
Alternative investments provide an opportunity for reducing investment risks, improving portfolios, and more as an independent body. It has fewer associations than conventional assets and offers higher returns.
How much should an investor invest in alternative funds?
An expert investor mainly invests around 15%-20% of their portfolio in alternative assets as a low-risk investment. For high-risk investors, the allocation of investments is around 5%-10%.
Why should you add alternatives to your portfolio?
Adding alternatives to your portfolio helps diversify assets and reduce volatilityin your profile. Also, alternatives make your portfolios stable and offer opportunities to invest more in the future.