Are you interested in investing in alternative assets, but don’t know where to start? Take a look at our list of 10 alternative assets you can invest in.
Starting with the most well-known alternative investments, we discuss pros and cons of each asset as well as how you can get access. Make sure to read to the end to discover some investment opportunities you may never have thought of investing in before.
We will touch upon the following categories of alternative assets in this article:
Real estate is perhaps the most well-known investment opportunity, outside of stocks and bonds. Investors receive passive income from the properties that are rented out, and may also benefit from capital appreciation. Real estate has intrinsic value and over the past 10 years house prices in England have risen by 53% according to the UK House Price Index.
As we all know, getting on the property ladder isn’t that easy thought. Significant capital is required to buy an entire property, the process of buying property and getting access to a mortgage can be expensive and a hassle. If you plan to rent the property out for income you then need to deal with all the management aspects such as finding tenants, insurance, property upkeep and general administration.
If you’re unable to buy an entire property, there are various alternative ways to get access to this asset class.
Infrastructure is another type of investment that is commonly part of professional and institutional investment portfolios such as pension funds. While the value of infrastructure is easy to understand, it is not an asset that retail investors can invest in directly in most cases.
While you may not be able to directly invest in, say, the construction of a new highway, you can still obtain access indirectly via investing in funds or companies active in the space.
Another popular option is investing in private companies. To retail investors, investing in startup companies is typically the most accessible form of investing in private companies. Not only do investments in these early-stage startups have a potential to generate very large returns, they also allow you to support a business you’re excited about and want to see succeed.
The downside is that early-stage startup investments are one of the riskiest types. Even if the startup is successful, you may not be easily able to sell your shares and may have to wait several years to cash in once the company gets acquired or goes public.
Fine wine and rare whisky have been part of investment portfolios of wealthy investors for generations, but haven’t yet hit the mainstream market due to several barriers that have traditionally made it difficult to invest in these assets.
The are a number of price drivers, but it primarily revolves around limited supply, increasing demand and therefore increasing scarcity. Only a certain number of bottles get produced each year by top producers, and once bottles are consumed the supply of that particular vintage decreases; the result is that over the past 10 years fine wine has increased in value by 127% and rare whisky by 478% according to the Knight Frank Wealth Index. Moreover, fine wine has a very low correlation to the stock market which makes it a good way to diversify your investment portfolio.
The challenge with buying wine or whisky is that there are many different types you can buy and for non-experts it can be difficult to decide what to buy. Since (pricing) data is limited or not publicly accessible, it makes it even more difficult to make informed decisions. What’s more, if buying these items as an investment you will need to make sure the items are stored in specialised climate-controlled storage facilities.
Similar to fine wine, luxury items such as classic cars, watches and handbags have been popular assets for the wealthy. The items are normally acquired either to enjoy, or as an investment.
Luxury brands such as Rolex and Hermes constrain supply, demand often outweighs supply which drives up prices on the secondary market.. This scarcity results in are higher than those in the primary market. Moreover, items are bought for use (i.e. to drive or wear), meaning supply of limited edition items in prime condition becomes rarer over time.
However, it is hard to access the more rare or limited edition items without the right connections and cost per unit can be very high, typically £100,000+ for premium items
To learn more, check out this article where we take a closer look at the collectibles market.
Did you ever collect Panini Football Cards or Pokémon Cards? You may be surprised to learn that some of the rarest first-edition Pokémon Cards are currently being sold for hundreds of thousands of pounds.
Investing in trading cards may seem niche if you’ve never looked at the market before. However, compared to other collectibles, trading cards have more standardised grading systems and public pricing data is available for buyers to make informed decisions. And similar to other collectibles, specialised marketplaces exist where buyers can buy and sell.
A potential risk with trading cards is the rapid price increase over the past few years in the asset class. This may either signify great momentum, or signify the asset class is currently expensive. Moreover, cards may be more sensitive to trends than other collectibles. For instance, Pokémon or a specific football player is popular with an audience from a certain age range whereas Rolex has transcended generations.
When it comes to digital assets, cryptocurrencies are probably the most well-known asset class. Besides investing in Bitcoin, there are various other cryptocurrencies you can invest in. Some coins, such as the infamous Dogecoin, are purely speculative. Other coins, such as ADA, are part of projects developing technologies or services utilised in real-world applications like smart contracts.
As bitcoin has gone up by more than 500% over the past 12 months (Mar 2021) it'd have been one of the most lucrative investments on this list over this time period. At the same time, cryptocurrencies remain one of the most volatile asset classes and so it's important to think about how much of your portfolio you want to allocate to crypto.
Perhaps you know that everytime an artist’s song is played on the radio or tv or streamed on Spotify, the artist gets a small reward - royalties - in return. While this could provide an artist with continuous income over many years, some artists decide to sell their future rights to income in exchange for cash today. The royalties can provide a passive income stream to investors and also allow you to support up-and-coming artists needing capital for new projects.
Investing in new artists comes with risks as it’s hard to know whether the music will be popular, especially over a long period of time. Even popular hits from famous musicians fall out of fashion after the first few years, it is only at that point music royalty investors tend to look at acquiring the licencing rights. Furthermore, it is typically not possible to get direct access as a retail investor.
While you can try to generate a side income by setting up your own online store, another method of generating passive income is to invest in and buy an existing online store. In this case, someone else has already built a customer base, set up the supply chain and logistics and built and designed the store.
In theory, you could keep generating income from the store with minimal efforts. Risks include the product becoming out of fashion or new competitors entering the market. Moreover, it’s not as hands-off as buying stocks; even if you outsource as much as possible there will still be some time required to manage the store.
Of course this article wouldn’t be complete without adding one of the newest and fastest growing asset classes: non-fungible tokens (NFTs). NFTs are unique tokens that represent ownership in an underlying digital asset such as a digital artwork or digital trading card.
As it’s a market that is only starting to emerge it is impossible to predict in what direction the market is headed and whether we’re at the start of a game-changing development or whether the NFT boom will be a short-lived hype. It’s certainly an interesting one to follow and inevitably new opportunities and formats will keep coming along.
At Koia, we allow you to start investing in tangible assets for as little as €50, via fractional investing. Our experts make sure to source and buy the best assets, and we take care of authentication, storage and insurance. All of the benefits, with none of the hassle.
The articles and information made available on Koia are provided for information and educational purposes only and do not constitute financial advice. You are advised to consult with an independent financial advisor for advice on your specific circumstances.