Alternative investing is a growing field that includes a variety of investment types beyond the conventional. These alternative investments offer a complementary approach to traditional investing, presenting an effective means to diversify your portfolio and find new opportunities.
Historically, investments have been a pathway for those aiming to achieve financial independence and access wealth-building opportunities. This pursuit involves the strategic allocation of money or resources toward assets with the expectation of generating favorable returns.
Traditional investing primarily revolves around three core categories: stocks, bonds, and cash. However, the investment landscape also encompasses mutual funds, ETFs (Exchange-Traded Funds), and government securities, broadening the spectrum of traditional investment option
Over time, the evolving financial markets have introduced numerous investment opportunities catering to diverse investor profiles. Selecting the right investments for your portfolio can be a daunting task, influenced by several factors such as risk tolerance, financial objectives, tax considerations, and your preference for active versus passive investment strategies. Furthermore, investors must decide whether to navigate these decisions independently or seek professional guidance.
Traditional investing, often associated with a “long-only” strategy, is generally perceived as safer, benefiting from a more regulated and transparent methodology. In contrast, alternative investing provides a diversified approach by incorporating strategies that are not typically found in traditional settings, such as real estate, commodities, and private equity.
This article aims to explain what alternative investing is, why companies like WebStreet are betting on portfolio diversification and why it’s a perfect opportunity for tech-savvy investors and entrepreneurs to understand alternative investing characteristics, returns and overall benefits.
What Are Alternative Investments? A Deep Dive
What are alternative investments? Understanding alternative investments is crucial in a financial landscape where traditional investments like stocks, bonds, and cash might not meet the diverse needs of all investors. While traditional assets remain foundational to many portfolios, exploring higher ROI options through alternative investments is increasingly appealing to a broad range of investors.
Traditional investments involve assets like stocks and bonds, known for their liquidity and the regulatory environment governing them. Here’s a quick overview:
- Stocks: Buying shares means owning a part of a company. Investors typically earn returns through dividends or stock price appreciation. Though commonly associated with public companies, private equity represents a similar concept for private firms.
- Bonds: These are loans investors give to entities (corporate or governmental) in exchange for periodic interest payments and the return of principal at maturity. It’s a regular and consistent type of income, and its risk is very low, but so are the interest rates paid.
- Cash and Cash Equivalents: Holding cash or investing in money market instruments is considered the safest investment, offering quick access to funds. However, these investments might not keep pace with inflation over time.
Now, having covered what traditional investments are, let us differentiate and compare them with alternative investing.
Alternative investments stand apart from their traditional counterparts by offering access to a broader array of assets, often with less liquidity and higher potential returns. These can include real estate, commodities, private equity, and more. Such investments might carry higher risks and are typically less regulated, appealing mainly to accredited investors and those with higher risk tolerances.
Types of Alternative Investments
To facilitate the understanding of how alternative investments work and what might be the right option for you, here are seven types of alternative investments and examples of each one of them:
1. Private Equity
Private equity represents a high-return investment alternative, exemplifying diverse investment strategies. Partnerships acquire and manage companies, aiming to foster growth and ultimately sell them for profit. Private equity firms acquire assets from both private and public companies, overhauling them to generate future returns upon sale.
Private equity is one of the most favored sectors in the investment industry, gaining even more popularity during times of rising stock prices and falling interest rates. Firms may choose to enhance a business’s value during portfolio management or realize its value by selling it upon exiting the investment.
Typically, private equity funds last 7 to 10 years, during which withdrawal of the invested capital is not possible, although the exact duration may vary by company. Private equity allows various investors to purchase shares in private companies, including startups and primarily mature companies. Sometimes, private equity firms and funds specialize in specific categories or deals, as WebStreet does with SaaS assets, among others.
Companies benefit from private equity investments, particularly those facing financial constraints, seeking growth, or requiring capital for restructuring and expansion. Private equity firms aim to acquire companies to increase the value of their investments, which depends on the duration from the purchase to the exit of the investment. They support these companies with management, technology, and other needs.
As an investor, private equity can be beneficial since funds are managed by professionals who ensure a high return on investment while earning management fees. Though less regulated than traditional investments, private equity offers a vast array of opportunities across various industries and niches, enabling investors to diversify their portfolios and enjoy enhanced flexibility.
2. Commodities
Commodities, which are interchangeable goods that can be directly invested in, are often traded via futures contracts. This allows for the buying and selling of items like gold and coffee. However, this market is characterized by higher volatility and unpredictability, leading to increased risks.
These commodities can be divided into soft and hard commodities:
- Soft Commodities: These encompass agricultural products and livestock, such as sugar, coffee, and other age-old crops, which are grown rather than mined.
- Hard Commodities: These consist of extracted materials like gold and oil, which are closely tied to a country’s economy and can be easily quantified.
Like other alternative investment opportunities, commodities offer portfolio diversification and feature higher liquidity, making them easier to sell at any time compared to many other investment types. However, they also expose investors to the challenges of market volatility, geopolitical risks, and potential environmental sustainability issues.
3. Private Debt
This alternative investing refers to private market loans to companies instead of banks or public markets. Unlike private equity, money is provided through a loan instead of buying a share, which means that interests are the returns.
It’s referred to as “private” because we’re talking about institutional and individual investors who lend the money. Companies that need to achieve goals and require the money benefit from these loans.
Its risk is lower than private equity because debt holds a higher priority over equity when it comes to repayment, but of course, this means lower expected returns.
Some examples of private debt may include:
- Credit card debt: Money owed due to goods purchased or services with your credit card, accumulating interest if you don’t pay by the due date.
- Corporate bonds: Investors lend money to companies in exchange for regular interest payments, with higher returns through interest.
- Business loans: Companies lend money between businesses for different purposes, these might include expanding operations or purchasing equipment, which need to be repaid with interest.
- Personal loans: Money borrowed between individuals for personal use, to be repaid over time with interest.
4. Real Estate
Real estate investments can go beyond traditional property ownership, including:
- Real Estate Syndications: you partner up with a business and split the ownership between investors. This way, you reduce risk since you share the asset, while you can choose to decide if one party manages the property and the other acts as a silent partner, only funding the investment deals.
- Impact Investments: these alternative real estate investments not only allow you to access higher returns but also help the environment and impact positively on society. You might be providing capital for renewable energy, basic services like electricity or healthcare, or even sustainable agriculture.
- Real Estate Crowdfunding Websites: you can contribute funds to a collective pool for RE investment and expect high returns. It has usually been reserved for most affluent investors but has recently lowered the barrier while offering simple fee structures and clean user interfaces and, surely, a more diversified investment portfolio.
5. Collectibles
Coins, comics, toys, and wine represent just a few of the many possibilities in the realm of collectibles. With a discerning eye, collectibles can yield returns similar to, or sometimes greater than, those of traditional investments.
The value of these items may have increased since their original sale, and a significant market exists for the very piece you acquired years ago, perhaps assuming it was of little value. Their future value hinges on rarity and appeal to potential buyers—typically collectors—allowing for high returns with minimal time investment and maintenance.
Particularly now, as vintage items regain popularity, acquiring assets that appreciate over time offers an excellent method for diversifying your portfolio and engaging with a distinct industry.
Like all investments, collectibles come with risks, and returns may be modest due to the niche market. Specific items, such as diamonds and stamps, could stand out, with estimated returns ranging from 5% to 10%.
6. Cryptocurrencies
Cryptocurrencies have emerged as a prominent and growing avenue for those exploring alternative investments. They offer the convenience of straightforward management and the ability to easily convert into cash, making them a notably liquid option.
However, cryptocurrencies represent more than just a new category for diversification; they are part of an evolving market. With increasing regulation, many crypto businesses are choosing to comply with legal standards within their jurisdictions, enhancing trading flexibility.
Despite their appeal, like all alternative investments, cryptocurrencies carry inherent risks. Experts advise a cautious approach, emphasizing the importance of understanding one’s risk tolerance and financial objectives before diving into this volatile market. The ease of investment comes with the potential for significant losses, necessitating thorough research into the chosen currencies and ongoing market trends.
Embarking on alternative investments requires careful consideration of your risk tolerance, investment goals, and the amount of capital you’re willing to commit. While opportunities for high returns exist, the risks are also greater. Engaging with professionals and conducting thorough research is crucial.
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Why You Should Consider Alternative Investment Funds Such as WebStreet
Understanding that alternative investments serve as supplementary strategies beyond traditional stocks, bonds, or cash, one can appreciate their potential for high returns on investment (ROI). Alternative investment funds, which pool private capital for company investments, are heralded for their lucrative prospects.
WebStreet introduces a high-return, passive income avenue in the realm of alternative investing, focusing on online businesses. With a professional portfolio manager at the helm, investors can diversify their portfolios through investments in cash-flowing assets such as online content sites, Amazon storefronts, SaaS companies, and more without the need for direct management.
This strategy minimizes not only hands-on involvement but also promises substantial returns (20%+ annualized IRR), making it an attractive option for those looking to increase their investment income.
For those lacking the time to actively manage investments but eager for new opportunities, WebStreet presents a solution. It offers the chance to generate passive income from the burgeoning sectors of e-commerce websites, SaaS and digital assets, all under the expert guidance of WebStreet’s portfolio managers.
Emphasizing fractional ownership in cash-flowing online businesses, WebStreet alleviates concerns over management responsibilities or industry knowledge. Investors can confidently invest in alternative investment funds in the growing online business landscape, assured by the diligent oversight of WebStreet’s portfolio management.
WebStreet’s diverse strategies and business models aim to mitigate risk, ensuring that portfolio managers’ success is directly tied to investors’ returns. Their proven track record and transparent performance metrics underscore their commitment to excellence and the continuous growth of investor funds.
What sets WebStreet apart is its passive accessibility to accredited investors, entrepreneurs, busy founders, and high-net-worth individuals seeking to expand their revenue streams without the direct challenges of business ownership or management. This makes it an attractive option for those with extensive commitments or those looking to diversify their investment portfolio without additional stress.
While the current minimum investment is set at $60K per fund, prospective investors should verify the latest details on WebStreet’s website before committing, as terms are subject to change.
The investment process is straightforward:
- Review the Portfolio Managers: WebStreet ensures that only long-tenured professionals, thoroughly vetted for their expertise in acquiring and managing online businesses and funds, are on board. These professionals’ credentials become accessible after you log into WebStreet’s website.
- Invest: Begin your investment journey by completing the accreditation process, signing the necessary legal documents, and wiring your investment according to the provided instructions.
- Receive Distributions: After selecting your funds and completing the investment process, you’ll own a fractional share of each business within your chosen fund. You can then look forward to quarterly distributions, which continue until the business is sold, typically within a 2 to 4-year timeframe.
Alternative Investing: Conclusion
Alternative investing is a fantastic world of infinite opportunities and possibilities, if you carefully dig into it.
It’s an ever-evolving niche that results in higher risk-adjusted returns for your portfolio. Conducting due diligence and choosing the right investment method for your particular situation is the best advice for anyone wishing to explore the world of alternative investments.
Companies like WebStreet make the journey much smoother, professionalizing in the world of online business and alternative investment funds and managing your money to ensure that you can relax and wait for your cash flow returns.
Considering how risky alternative investments are, I can’t think of a better way to enter the sometimes unknown world of online business investments than with professional operators to help you succeed.
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