A solid investment portfolio takes its cue from one of the oldest proverbs known. Never put all of your eggs in one basket. Diversification of assets means that the overall portfolio is at a lower risk for losing a large chunk of value. Traditional investments have always included stocks and bonds, but with recent fluctuations in the market, many are looking outside and into the realm of alternative investments.
In alternative investments, there are core strategies, such as real estate, or commodity trading in precious metals. Then there are investments that are considered fringe, but yield exceptional results, such as bitcoins.
Bitcoins are a relatively new investment opportunity, but not one that should be overlooked. A form of digital currency, their scarcity and growing acceptance have driven their prices up enormously. For example, in 2009, an investor in Oslo, Norway, purchased $26.60 worth of bitcoins. He forgot about them and was reminded of his purchase in 2013. Their value had shot up to $886,000. In 2017, the current value for that amount is $6.7M!
An alternate method of purchasing bitcoins is to invest in their creation, or “mining.” Mining companies, such as Genesis Mining, allow investors to get into the lucrative bitcoin currency without a huge outlay of capital. As a currency investment, bitcoins are a volatile commodity, but their potential for staggering growth is one that investors are wise to pay attention to.
Precious metals have always been recognized for their value, and almost every wise investor will include some gold, silver, or platinum in their portfolio. Although the market for precious metals remains volatile on a micro-scale, as a long-term investment, they still offer amazing returns.
Gold prices operate less off of supply vs. demand and more on what the world sentiment is. When people feel that the economy is unstable, there is significant political upheaval, or the threat of conflict, investors flock to gold as a means of safeguarding their wealth. A person can carry their entire fortune on them in the form of gold; because of its inherent value, it can be exchanged readily for goods or even safe passage out of the conflict.
Silver and platinum also have short-term volatility. This is because they both are heavily affected by industrial demand for limited supply. Both platinum and silver are used in numerous commercial applications, including catalytic converters, bearings, and electrical connections. Still, in the long run, both metals offer a solid investment for a portfolio.
When it comes to core alternative investments for a solid investment portfolio, real estate is one of the most solid items a person can have. There are three primary methods that an investor has at their fingertips to add real estate to their portfolio. The first is direct investment. This is where an investor selects individual properties to purchase. The advantage to this is that the investor exercises complete control over their properties. The primary drawback to this method is that it takes a lot of capital to diversify real estate holdings enough to minimize local fluctuations.
The second method of investing in real estate is a real estate mutual fund. The mutual fund handles investing in REIT stocks. This allows an investor to add the nearly guaranteed long-term growth of real estate to their portfolio without a large investment of initial capital.
The last method is to invest in a real estate investment trust (REIT). This is perhaps the best way for an individual investor to add real estate to their portfolio. This is essentially a publicly traded company that offers stock. However, the REIT is a company that operates in real estate, such as strip malls, larger malls, and hotels. The stock price for an REIT is much more volatile than the value of a direct investment. Also, the price of REIT stock is significant, making it a barrier to most individual investors. However, the trade-off is that management issues over individual properties are handled by the REIT.
There are many alternative investments that a savvy investor can and should add to their portfolio. All of them however, entail their own risks, but with proper research, a small investment at the correct time can lead to huge windfalls over the years.