What are alternative assets?

Hello 

How’s your day going?

We are two days into March. What are you investing in? 

For most people, investments would be rotated among asset classes like equities, fixed income and so on. Alternative assets do not come up often. 

Alternative assets are those that do not fall into the conventional categories such as stocks, fixed income. The definition is somewhat loose. 

There is a wide variety of alternative assets. 

Private equity (which is the purchase, restructuring and sale of companies), for instance, is an alternative asset class. Private equity, however, is a much more “regular” alternative. 

Cryptocurrency is also an alternative asset. Cryptocurrency has gained popularity in the last couple of years. 

However, there are other alternative assets that are a bit off the track. Examples are:

Artwork 

Did you know art is an investment? While some of these artworks run into tens and hundreds of millions of naira, you can start with upcoming artists. Please note that you need to keep them in good condition and also insure them. 

Jewelry 

One can also buy commodities such as gold and diamonds. 

Vintage cars 

Well-maintained vintage cars are also collectors’ items. While valuation can be subjective, there is a niche and profitable market for such cars. What’s fairly common today could be vintage in a couple of decades. At the same time, many people have some of these cars lying around in a state of disrepair.  

Wears 

I am sure you must be surprised by this. Limited edition sneakers command a pricey sum. An example is Yeezy 2 "Red October," which retailed for $250in 2014, is now worth $5,655. Even handbags can be a form of investment. A limited edition Birkin Bag, for instance, could sell for 5 to 10 times its original cost in a decade or two.

The downsides 

As lucrative as alternative investments can be, they also have downsides. The biggest downside is liquidity. For instance, if you have a vintage car for sale, you may not get a ready buyer overnight. 

The second downside is that valuation can be volatile. What’s hot today can become unpopular tomorrow. 

Before you dive in, know that:

Alternative assets should not be your starting point in your investment journey due to the disadvantages highlighted above. 

You also do not have to do the heavy lifting. You could decide to invest in a hedge fund which, in essence, is a pool of money run by asset managers who are empowered to invest in literally anything from the regular assets such as stocks and bonds to the assets like the ones mentioned above. 

Today is the 3rd day of the 3rd month of the year. There’s still lots of time to learn and become better at your personal finance. The MoneyAfrica community is a great fit for you. It costs ?20,000 a year and you can sign up using this link - www.themoneyafrica.com 

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