In addition to investing in the stock market or putting your money in a savings account, there are plenty of alternative investment opportunities to explore. Investing in alternative assets can range from more well-known opportunities like investing in startup companies and investing in real estate, to investing in assets you may not have considered before such as wine, sneakers or even Pokémon cards. Whereas most of these opportunities were previously only accessible to the super wealthy, new technology has made it easier for everyday investors to get started. In this post we take a deeper look and answer the top questions you might have on investing in alternative assets.
Alternative investments are typically defined as any investment outside of stocks and bonds.
Some characteristics that many, but not all, alternative investments share:
There are several reasons for investors to consider adding alternative assets to their portfolio. To start with, some alternative asset classes, such as collectibles, have historically generated strong returns which make them an attractive investment opportunity. Moreover, there are plenty of alternative assets that have no correlation to the performance of the stock market, which means that if the stock market goes down it does not have an impact on the value of these assets. This can help diversify your investment portfolio and smooth out returns. Check out our blog post to find out more details on the benefits of investing in alternative assets.
Previously, most alternative investment opportunities were accessible only to the ultra-wealthy, but new technologies have opened up access to everyday investors. Compare it to the stock market: just 10 years ago most brokers charged hefty fees for making a trade and minimum account balances were often in the thousands of pounds. It’s only been recently that low-cost brokers have come on the scene, minimums have gone away, and investors got the ability to buy “fractional shares” - a portion of a share, which comes in especially handy with expensive shares like Amazon’s which trades at more than £2,000 per share.
When it comes to alternative assets, a similar trend is unfolding. In the UK, it all started with startup crowdfunding platforms like Seedrs and Crowdcube, which allowed retail investors to access startup investing opportunities, previously only open to investors willing to invest large sums of money.
Today, other markets are following suit and opening up. Whereas buying a work of art or classic car will normally set you back hundreds of thousands - or even millions - of pounds, companies such as ours are making it possible for investors to own a small stake of an asset. This means that you can get started with amounts as low as £50. Not only does this make it more accessible to anyone, it also enables investors to trade with each other more easily. Fractional ownership also helps create liquidity, meaning that you can more easily convert the investment into cash when you want to sell your ownership stake.
There are many different types of alternative assets that you can consider investing in. Broadly, you can think of these categories as the biggest ones:
Real estate is one of the most traditional forms of alternative investment. Not only can investors benefit from the potential increase in value of the properties, but they can also generate an income from collecting rent. Aside from buying an entire property, various platforms have made it possible to own fractions of properties, or make loans to property developers.
Private Equity & Venture Capital
Private equity means investing into private companies not listed on the stock market. It could entail investing in more traditional businesses like a restaurant group or high-growth technology startups. Whereas financing later stage companies still remains inaccessible to most investors, startup investing has slowly opened up to retail investors via startup crowdfunding platforms.
Tangible Assets & Collectibles
Tangible assets span a wide range of items, from collectible whisky bottles to classic cars and vintage watches to trading cards. As most of these items are produced in small quantities and items such as cars are used or wine consumed, supply reduces over time, making each item rarer. As the demand from avid collectors and wealthy millionaires remains strong, it means there will always be buyers willing to pay top dollar for rare items. Learn more about the economics behind collectibles markets.
With P2P lending, you lend out money to individuals or businesses who pay you back over time with interest. With some platforms, you pick a specific business or individual to loan money to, and in other cases the platform allocates your investment amount across a number of borrowers. An advantage of P2P lending is that returns can be more predictable than a volatile stock market, but there is always a risk of defaults or non-payment.
There are various types of digital assets you can invest in. You’re likely familiar with investing in cryptocurrency, but this is not the only option when it comes to investing in digital assets. Other asset classes like music royalties are gaining momentum with professional investors, as this asset class can provide a steady income stream. Some funds investing in music royalties are listed publicly, enabling retail investors to get access.
To learn more about different types of alternative asset classes and find out how you can start investing in them, head over to our article on top alternative investment ideas.
Alternative investments can be a great way to diversify your investment portfolio and generate returns. However, as with any investment, it’s important to remember that historical returns don’t guarantee future results. Besides considering the financial risks, other factors to look out for specifically when it comes to alternatives are whether there are any minimum amounts involved, and whether the investment can be sold easily.
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.