Many Investing Alternatives Are Proving to be Great Investments

From beating rising inflation, to lowering risk and delivering steady returns, alternative investments are proving that they are a great investing option.

I have spoken about alternatives for investors on several occasions, and while one must carefully review investments, confidently knowing which ones are the best investments is what assures great asset selection. Many investment alternatives are proving to be a great option, and even though they should be a small portion of your overall portfolio, there can be lucrative returns to be made with the right selection; at the right time.

In a 2012 study of luxury goods, found in Knight Frank's Luxury Investment Index, it was reported that over the course of ten years; as much as a whopping 174% average return was taken on several product categories. Classic cars, antique watches and other luxury goods can make for a good investment, as demand for these assets steadfast. Rare, special collector coins yielded a huge return of more than 225%, and classic cars leading the way with a 430% return over a ten year period.  Returns like these are unusual, but they are there if one has the appetite for these type of alternatives.

Real estate internationally is showing great returns of late as the UK's luxury real estate market has seen growth for the past two years, with Asian and Mid-East investors scooping up commercial and residential properties throughout London and surrounding countryside.  It's far from over, and can provide great investment return.

A Little More on Classic Cars: This excerpt taken from The Guardian – Shortcuts Blog.

According to Talacrest, an Ascot-based specialist that has sold some $600m-worth of classic Ferraris, vintage Ferraris are "the Picassos of the car world", increasingly seen as a rock-solid investment. The man believed to have sold this particular model, Jon Hunt, founder of Foxton's estate agency, wouldn't quibble with that: he appears to have made £4.5 million on the car in the four years he owned it.

But here's the thing: in 1963, the same car cost £6,000. As investments go, could you have done any better? If you had hung on to the car, your initial outlay would have multiplied nearly 3,400 times. So where is it safest to put your money?

Working out the returns on long-term investments is not easy. For one thing, it is necessary to choose investments that beat inflation and preserve your personal wealth.  According to thisismoney.co.uk, £6,000 in 1963 is the equivalent of just over £100,000 now. But all the same, in 1963 an ounce of gold cost $35.09 (£22). In late January 2014 it was trading at $1,700 (£1,069) an ounce – an unbelievable 49-fold increase.

Then, there are the "alternatives to alternatives" which provide a lower risk, albeit lower return, but growth through conservatism is a strategy for many investors. Some of these include:

• Convertible Mutual Funds
• High Yield Bonds
• Short Equity

Not to be forgotten, in recent years there have been numerous other alternative product categories that are emerging as good alternatives for investors, as well. For example, fueled by the increase in demand for durable goods globally, Intermodal transport companies have proven to deliver good investment returns; throughout the worldwide economic downturn. Moreover, with the worldwide shipping port and infrastructure investments, as well as the expansion of the Panama Canal, the maritime and railway transportation of cargo containers is expected to see dramatic growth. Thus, it is expected that investors will discover excellent vehicles for long-term investment success.

Investors Seek Alternatives to Traditional Investing Options

Every investor has felt the urge to seek alternatives to traditional investing options and live life on the proverbial edge.  It’s no secret that investing in traditional stocks, bonds and mutual funds can sometimes become a bit boring.   How one can profit from alternatives can sometimes be more difficult at the early going, especially if the investor is a novice.  It is always wise to seek guidance along the path to knowledge of non-traditional investing.  Have a professional fund manager, or investment broker review alternative investment vehicles with you, at least in the beginning. Boring can be predictable, and non-traditional investment options hold an elevated risk. Alternatives may not be for everyone.

Alternative vs. Traditional Investments

Morgan Stanley produced a great tool highlighting the inherent differences between Alternative and Traditional investments, as seen below. Their opinion concludes that Alternatives can lower volatility and add diversification 1 to an investor’s portfolio.

Alternatives for Investors

Alternative investment strategies are considered those that are beyond the reach of equity and traditional fixed-income markets. What were once high risk, low participation investment vehicles: venture capital, real estate, hedge funds and (NTMF) non-traditional mutual funds, are now just some of the options today’s investors may find lucrative.  Other alternatives for investors are infrastructure funds, climate related investments, global shipping containers, and hard assets, like precious metals, oil and gas, to name a few. One can profit from the economic growth right here at home, say, fracking operations. There is even a belief that sports betting and other forms of gambling are viable and legal alternatives for investors. The jury is out on that one, as far as I am concerned. Speaking of hedge funds, in September of this past year, Bloomberg reported, "Billionaire investor Warren Buffett compared the U.S. Federal Reserve to a hedge fund because of the central bank’s ability to profit from bond purchases while accumulating a balance sheet of more than $3 trillion." Now that is an alternative of a different color. Another alternative for investors lies beyond domestic shores.  An investor can profit from the economic growth in countries experiencing rapid evolution in stability. Rising incomes per capita and lower cost of food are great indicators of possible investment locations.  Imagine investing in the implementation of electricity to a Sub-Saharan country, thereby opening up opportunities for lifting millions from poverty. Some are not even recognized as alternative investments.  Berkshire Hathaway (BRK) is a fine example of what is considered traditional, yet is in fact managed like an alternative. Blending a variety of companies and industries with derivatives under a single brand, thereby managing risk, and sold on the stock exchange make for a non-traditional alternative.

Caveats to Alternative Investing

There are many alternative investment opportunities which have a steep barrier to entry. That is, although they might have less regulation over them, they may have significantly higher minimums, performance and management fees than do ETFs and mutual funds. Being subject to less regulation may sound appealing, but it also allows limiting published information and financial performance data that is much less than is ideal. Because alternative investing requires a significant amount of knowledge and experience, schedule a review of alternative investments with an experienced certified financial planner or investment brokerage.   As for alternative investing options for retirement go, the use of your 401K or IRA can cost dearly when a prohibited transaction occurs.  Because an individual cannot make financial gains directly in such a scenario, avoiding real estate investing is a sound idea.  Failing to follow regulation may result in higher tax burden, as doing so may remove the tax deferred status of your portfolio.   In the end, only the investor can decide which investment vehicles are the right fit.  There are always new strategies and tactics emerging, so if not now, some day the right alternative may present itself.