Many people have suffered large losses as a result of the financial crisis
. These large losses have made people seek out alternative investments as a way of protecting themselves. These investments do themselves come with risks and we will be looking at some of these today.
Why are alternative investments a good idea? Well many of them have a low correlation with traditional assets. This means if one goes up or down then the movement of the other is likely to be unrelated. This helps you in trying to perverse you wealth as it adds a further degree of diversification.
Why is diversification good? If you had your money tied up in traditional asset such as property, stocks, bonds and cash then you are likely to have done poorly over the last few years. The stock market has performed poorly for even longer as it is lower than it was 10 years ago. Even if you hold cash it is likely to be losing its value in real terms.
I am not saying to blindly invest in alternative investments such as art, antiques or stamps etc. They have their negatives which I will mention. You do need to have an open mind to them.
The biggest disadvantage is the stock market's big advantage... liquidity. It is always dangerous trading in an illiquid market because you may not be able to realise any potential gains. If there are no buyers around then you might not be able to sell.
A small market place with a lack of participants means that it is difficult to establish proper prices. There also isn't a lot of historical data which means that you may have to put some work into establishing a price for yourself. This can be hugely subjective and prone to errors. If you do it well though there can be huge potential in alternative investments.