subject: Alternative Investments: A Good Idea? [print this page] 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.
I just want to go over why it is so important to diversify through alternative investments. Traditional investments such as stocks, property, bonds and cash have performed badly on average. The stock market is less than its value 10 years ago. There have been housing bubbles popping as the credit dries up and interest rates are so low that the real value of cash is in decline.
This is not to say that all alternative investments are a great idea. You just need to be open to the idea. Investments in stamps, art, antiques and other collectables have some disadvantages which we will go through now.
So what are the disadvantages? Well firstly the market tends to be quite illiquid. If you decide you want to sell you can't just call up your broker and arrange a deal. This means that you have risk of not being able to liquidate your position if you need to.
A further disadvantage of alternative investments is the lack of data required to establish a price. The marketplace is not big so it is difficult for a fair value to be established. If you don't have the right information or knowledge then you are at a serious disadvantage. Mind you, if you know your stuff then there are huge opportunities there for you.
