Alternative Investments – Let’s Deal With The Negatives First
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As mentioned in my last post the financial world is crazy at the moment and it doesn’t look likely that craziness will end anytime soon.
Alternative investments offer you the opportunity to reduce risk. One of the key advantages of alternative investments is that they aren’t very correlated to stocks and shares. This means that when you turn on the news and see that the stock market has fallen by 5% you now that your other investments haven’t fallen that much.
Before we really look at different options you need to consider the following…
There are some disadvantages to having alternative investments. Often you won’t be able to find a buyer easily. The great thing about the stock market is that when you want to sell there is always a buyer. The market is very liquid.
The problem with alternative investments is that there isn’t the liquidity there. That often means that you have to seek out a buyer and this puts the advantage their hands and can reduce the price. This isn’t always the case with alternative investments but it does happen.
Then you have the problem of valuing the asset. If there aren’t lots of buyers and seller it is hard for the market to establish a fair value. This can put you at a disadvantage.
Lack of information is a big problem with alternative investments. Lack of information puts an individual at a major disadvantage. The lack of historic data in these markets is a contributor to this problem. However, if you do have superior information then you can clean up.
Establishing the current value by analysing and seeking out data can take time. This adds to the ‘cost’ of the purchase and therefore you should demand a better return.
A lot of alternative investments are physical assets. This means transportation and storage costs. These are hidden costs that can catch investors out.
Now we have covered the disadvantages we will move onto the business end with some alternative investment strategies.
Until next time!
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