The advantages of alternative investments compared to traditional ones
What are the most important alternative investments and what earning opportunities they present
A financial portfolio can consist of traditional investments and alternative investments .
The choice of one or the other, or both, will depend on your financial goals, the capital you want to make available and the risk you are willing to bear.
But actually, how do alternative investments differ from traditional ones?
Traditional investments: stocks and bonds
Traditional investments are most commonly represented by stocks and bonds . Let’s find out in detail what they consist of. Investing in shares
allows you to buy shares in a company and participate in the risk capital of the same. The gain for those who invest in shares comes from receiving a share of the company’s profits called dividends, or from selling the shares themselves on the stock market. The risk associated with this type of investment is linked to market trends and price volatility,
for this reason, when investing in shares, it is advisable to aim for a long-term time horizon.
Instead, when we talk about bonds , we are talking about debt securities issued by companies to finance themselves. Investors allocate their capital to these companies, obtaining interest together with the loaned capital, which will in turn be repaid according to precise deadlines.
The risks associated with bonds concern various aspects, first of all the risk of issuer insolvency and the risk that inflation could reduce the nominal interest rate to be received .
Alternative investments: what they are and which are the most common ones
When we talk about alternative investments we are referring to a whole series of assets that are far more accessible to small savers and that allow them to manage their investments in total autonomy without the intervention of a financial institution.
Specifically, alternative investments serve above all to foster portfolio diversification , reduce risks and increase earning opportunities. Among the most important types of alternative investments
we can include Private Equity, Hedge Funds, Venture Capital and real estate crowdfunding.
In the next few lines we will go into more detail on the details of each type.
Private Equity is one of the most important types of alternative investments and allows investors to use their capital in unlisted companies with high development potential.
Venture capital makes it possible to finance companies that are in the start-up phase with high growth and development potential. This type of alternative investment allows investors to obtain a substantial profit by selling the acquired shareholding or by listing the company on the stock exchange.
A Hedge Fund is a private mutual investment fund , reserved for a limited number of accredited investors, which is managed by a professional manager to obtain higher returns than a specific market benchmark.
Real estate crowdfunding
Real estate crowdfunding is among the most popular low-risk alternative investments in this period and allows small savers to support various real estate projects on specific online platforms in the equity or lending formula.
Equity allows you to invest by becoming shareholders of the proposing company while lending consists of a loan on which interest accrues without being bound to the proposing company.
Why prefer alternative investments over traditional ones?
Below are the 3 reasons why you should prefer alternative investments to traditional ones.
1. They have a low correlation with traditional assets
Alternative investments have a low correlation with more traditional investments and being less subject to market risk, they represent an ideal solution to diversify your portfolio and reduce the risk of losses.
2. They offer excellent coverage in times of inflation
“Hard assets” are considered alternative investments , ie assets linked to tangible assets such as real estate , consumer goods , land, goods , gold . This type of asset allows you to contrast periods of inflation as they are not affected by the market trend.
3. They have higher returns
If you are looking for investments with higher interests, alternative investments are for you because they allow you to obtain higher returns than traditional assets at a lower risk.
Earn with alternative investments thanks to real estate crowdfunding
We can consider alternative investments as an interesting way to invest your capital and make it bear fruit, obtaining very attractive earnings.
In the previous lines we have already mentioned the real estate crowdfunding , now we want to tell you why you must not miss this precious earning opportunity.
By registering on R Effetto Etico, our real estate lending crowdfunding platform, you can get interest between 7% and 10% annually by lending the amount that best suits your financial situation.
Generally you will get your income in a period between 12 and 18 months without being bound by the proposing company, as is the case with equity crowdfunding.
As highlighted in the latest report on Crowdinvesting of the Politecnico di Milano , the growth prospects of real estate crowdfunding in 2021 are very positive and will continue to involve a greater number of investors despite the climate of financial uncertainty, which will last for a long time.