Alternative Investments – What, Who and Why

What Are Alternative Investments?

As stock markets continue to falter across the globe, worries of a default on sovereign debt in Europe continue to mount, and inflation continues to erode the real value of savings, investors are considering alternatives to traditional assets such as stocks, bonds and cash. But just what are alternative investments, who is investing in them, and what are the risks involved?

Traditional Investments

Traditional investments are considered to be equities (shares), cash, bonds and property. Most investment portfolios are made up of a combination of these kind of assets, and financial advisors are trained to advise investors on the relevance of these kind of investments based upon their own specific set of circumstances. Investors have long invested in stocks for growth and income, bonds for income, and cash of income in the hope of building their wealth faster than the rate of inflation in order to provide for retirement or other life events such as school fees or maybe a house move.

Alternative Investments

An alternative investment can be any transaction entered into with the ultimate aim of generating capital growth in the value of the underlying asset, or regular income, that is not a traditional investment asset as detailed in the section above.

These kinds of assets have been very popular with institutional investors who want to diversify their portfolios and capture profit that is generated outside of the traditional markets. Some examples of investment alternatives are precious metals such as gold, art, fine wine, collectibles, farmland and forestry investments.

Alternative investments behave differently to traditional assets because capital growth is usually derived from an increasing demand and a finite supply, such is the case with gold, farmland, fine wine and art. The greater the demand, the higher the price and more profit for the investor. Income from alternative investments is not usually in the form of a dividend as with shares, but can be rental income from a property, or the sale of commodities produced by the asset such as crops from farmland or timber from forestry. This makes alternative investments popular because neither income nor capital growth is dependent upon the performance of stock markets or other traditional markets forces. This means that investors can turn profits, even in a downturn market.

Who is Investing in Alternatives

Large investors such as pension funds, hedge funds, family offices and high net worth individuals have been investing in alternatives for many years, in many cases generating excellent returns beating traditional markets by some margin. These investors are experts and understand the assets they are buying and how to value, manage and ultimately dispose of them effectively and profitably. Investing in art, for example, requires an extremely high level of expertise and knowledge to invest successfully.

Recently, institutional investors have started to buy more and more farmland and forests, as demand for all of commodities that farmland produces on annual basis such as food, animal feed and fuel, is growing in line with our expanding population. We simply require more and more of these commodities each year but we have very little farmland left that isn’t already in production. It is this increasing demand and limited supply that pushes up prices in the long-term, and the same can be said for forestry investment’s as humankind requires more and more timber to build and maintain our homes and cities, yet there is very little natural forest left to harvest so we must rely of commercially grown timber which takes many years to mature. Again, increasing demand and limited supply push up prices, creating profit for the owners of the assets.

Alternative Investments in Finance

Alternative investment involves investment in assets other than the traditional products of stocks, bonds or cash. These assets include the likes of art, antiques, wine, coins or rare stamps – in other words, rare items. Financial assets like commodities, private equity, hedge funds and financial derivatives are also accommodated in alternative investment. Due to the complexities in their nature and the regulations and the illiquidity involved, AI assets are usually held by institutional investors or accredited individuals.

A thorough investment analysis is required before buying and investing in alternative financial resources. They also involve a high minimum investment and fee structures compared to mutual funds. Traditional investment involves risk. We have seen how in recent times the world of finance was hit as bankruptcy triggered panic across the globe. But even in troubled waters, you don’t need to be bearish if you are the proud owner of a few bottles of Bordeaux or a Penny Black or may be a series of Andy Warhol prints as you are supposed to get their money back virtually.

Why do people go for alternative financial investment?

A probable reason why people invest in alternative resources is to diversify and reduce the overall investment risk. Portfolio diversification is suggested to potential investors to minimize the risk. And this can be achieved through alternative investment.

Advantages to investing alternatively:

Alternative investment involves low correlation with traditional financial investments like stocks and bonds. As a result several large institutional funds like the pension and private endowments have already begun allocating a small proportion, less than 10%, of their portfolios to alternative investments like hedge funds.
It is comparatively less liquid in nature.

Disadvantages to investing alternatively:

Lack of published verifiable performance data and minimum opportunity to advertise to potential investors.
Determining the current market value of assets is often difficult.
Cost of purchase and sales is relatively high.

The most common types of alternative investment include:

Hedge funds as alternative financial investments include a wide range of investment assets like stocks and commodities, which principally aim at offsetting the potential losses in the markets.
Future funds as alternative investments are standardized contracts of sale and purchase of commodity at a predetermined price on a specific date. Futures are used to trade currencies and commodities like petroleum and agricultural products.
Real estate can also serve as an alternative investment option, which typically involves buying and selling of immovable properties like land and premises. It yields rental income as well as capital appreciation.
Though not always viewed as such, art is certainly an alternative investment. This investment option gained some new traction after the 2008 market downturn and recession period.
Investment in vintage items, such as fine wine, has proved profitable with consistent high-yield returns, even in the months of 2008 credit crunch.
The precious metal gold is used as a defensive alternative financial investment, which tends to grow in popularity during periods of prolonged economic upheavals.

Alternative Investment Ideas

In today’s tough economic times, tough economic times, traditional sources of investments have become less predictable and in some cases profitable for the investor. This has led to the rise of alternative investments to help fill out the portfolio of the investor by letting them pursue alternative investment strategies to help offset the risks of the traditional market field.

Alternative investments are by definition investments that do not include stocks, bonds, cash or property which are consider the four pillars of traditional investments. These alternative investment ideas include a wide range of potentials from the more familiar such as precious metals and commodities to more obscure such as art, collecting certain desirable items (like diamonds, collectible watches), forestry, rare earth metals, etc.

During times of economic prosperity, these alternatives are traditionally used simply to augment the portfolio of investors. However, when times of economic prosperity turn to distress, especially with the current debt crisis gripping several western nations, alternative investments become far more prominent because they not only resist the downturn experienced by traditional sources of wealth, in the case of certain items such as gold or silver they can actually prosper.

The main reason alternatives are popular is because they are mostly based on items that have their own tangible value. Gold for example has inherent value regardless of the economic climate, the same as most alternative investments which makes them popular choices to hang onto when purchased inexpensively so they can be sold for a considerable amount when the demand peaks.

Understanding the power of alternatives means that you have to diversify your selections just like you would for your traditional ones. Perhaps the most familiar of these alternative investment funds is precious metals. In the late 1970s to early 1980s, gold in particular enjoyed a sharp rise in value in contrast to the high inflation, devalued stocks and overall crushing economic outlook which persevered until the mid-80s.

Investing in precious metals today has also become highly popular as the value of gold, silver and platinum have risen. This is based on the inherent value of the metals themselves as well as their finite quantity. In essence, a country can always print more money but there is only so much gold on the Earth. However, apart from gold and oil which are finite commodities, timber is also a source of alternative investments that is renewable, though like gold and oil it has increased in value over the past century.

Good alternative investment strategies also mean looking at collectable objects such as art, cards, wine, collectible watches, diamonds and the like. Unlike precious metals, the market for these types of collectable items will vary based on individual demand. Also, poor economic times does not necessarily translate to better alternative investment ideas as the supply of these items may be greater because of those looking to unload their collections during these troubled times, the demand for such items is less and the ability to sell may have to wait for years to pay off, if ever.

Wealth Management and Its Benefits

Wealth management is the amalgamation of the clients’ investments, taxes and estate plans into an all-integrated plan to achieve their individual goals through proper management of their financial resources. It is a discipline of investment advisory that integrates financial planning, investment portfolio management and a number of other financial services. It is also referred to as a high-level form of private banking for those who are quite affluent. To make the most of the its strategies, one must have a significant amount of wealth.

Once an individual has accumulated a fair amount of wealth, managing the wealth is the primary concern. It is very important that you manage your wealth so that you can enjoy the security that it can offer. With proper management of your wealth, you can also pass your wealth to the generations that will follow. Turbulent changes in the stock market, bad investments and dishonest money managers can at times hinder all your financial plans. So, it becomes very important to avail of the its services of a reliable financial planner.

Wealth management also includes protecting and preserving your wealth. Proper management of wealth begins with finding out your real worth. You must be earning a fancy six digit salary, but if most of it is going out in expenses, then your wealth is not worth that much. When you have gained sufficient knowledge about financial terms and also your actual financial worth, you need to manage your wealth. You would want to distribute your wealth in a manner that it lasts for your lifetime and can also be passed on to your next generation. For proper management of your wealth, you an avail professional wealth management services which will help you distribute your investments in a broad and diverse portfolio. You could invest your wealth in stocks, bonds, investment properties, assets, retirement plans, etc.

This proper management helps you identify your financial goals. When you have an idea about an initial objective while composing your wealth management plan, it becomes more planned and streamlined. The wealth management plan that you have circled down, not only gives you the opportunity to identify your goals, but also helps to set parameters for the achievement of these goals. Also, frequently reviewing your strategies helps in ensuring that your current financial decisions reflect your future goals.

Understanding Wealth Management

The term “wealth management” is really such a loaded one these days. When speaking of wealth, most people think about money.

True success isn’t just about financial gain. Everyone has fixed ideas about wealth, and everyone wants to know how to protect their wealth. Looking at the big picture, however, the key to wealth management has little to do with just investing funds properly.

Perhaps the real problem that so many people have with wealth management is the fact that they do not understand what real wealth is. They do not understand where the source of their wealth lies, and they spend their entire lives looking for that source in places where it does not exist. The first step in wealth management is to understand that the true source of wealth actually lies within you!

If you’re like most people, you have probably spent an adequate amount of time seeking wealth in your job, your relationships, or something else that you felt was important. Of course, these things certainly are important, but they do not provide the lasting source of wealth. They will make you happy for a while, but seeking happiness outside of yourself will only rob you of true happiness and true wealth. It’s pretty hard to practice wealth management if you haven’t uncovered The Source of wealth in you.

Just think of your inner source of wealth as your own, personal buried treasure. You may need to dig deep to discover it. However, God has given you a unique gift, and it is up to you to uncover it and to reveal it as the source of wealth, both for yourself and to the world in live in. After all, God is within, and you’re the true source of wealth. The energy within you is what feeds your inner source of wealth, gives it life, and sustains it. Only when you reconnect with God will you reconnect to The Source of wealth in you.

The Path of Wealth Management
As you begin to tap into your inner source of wealth, you will notice a major change– in yourself, in the way you treat others, in the way they treat you, and the type of people that begin to show up in your life. Wealth management will not be effective until the connection to the Source within is fully realized. So, how can you realize that connection with God and your inner source of wealth? You must take control of your life, your mind, your thoughts, addictions, ego and your destiny.

Remember, God is energy, and you are made of energy, too. God gave you the beginning, but the continuation is up to you. Learning and daily application of the simple laws of the Universe is a must if you want to live a rich and meaningful life.

The problem is that many people allow someone or something else to control their destiny. They do anything they can to avoid personal growth through addictions or material happiness, and they allow those things to control them. Instead of being strong and living a life based on a strong foundation, values, and principles, they are flopping about in the wind like a weed out on an open field.

The wind blows them around, and they are unable to find happiness or true wealth because they can’t control their own lives.

Taking Life off Cruise Control
You’re like a car with cruise control. You can choose to set the speed that you want and then let go of the wheel. If you do that, you may cruise along at breakneck speed for a few feet, but you won’t go far before you’ll end up going off the road. You also have the opportunity to grab that steering wheel and correct your course, placing control right in the palm of your hand.

Taking control of your life is simply a matter of choice and it comes through co-creating your life. Once you make that conscious choice to take control of your life, then it’s only a matter of time before you rediscover and reconnect to happiness and wealth. Wealth management is appreciating all that you’ve been blessed with. Decide whether you want to literally create what you need in your life or if you just want to cruise along.

The Beginnings of Wealth Management
Once you have wrenched control away from whatever else you were allowing to control your life, then you will begin to exercise true wealth management. You’ll automatically start to act like and be your true self. In the process, you’ll learn how to manage your wealth of personal gifts properly. The rest will naturally fall into its place.

You are an amazing creation, and the key to wealth management lies inside of you.

Uncover the treasures that hold your wealth. Make sure that you are managing the real source of wealth and not some bogus temporary source that lies outside of you and is based solely on material things. Don’t be fooled exclusively by the material that some people think holds wealth. Instead, remember where your true source of wealth is.

You already know everything that you need to know about wealth management. Just spend some time rediscovering that knowledge. Then, get out and apply it by taking action, because knowledge without application is useless.

Tips for Choosing a Private Asset Management/Wealth Management Firm

In today’s economy, many wealthy individuals and families are looking for ways to safeguard their wealth, and a private asset management firm, wealth management firm or investment management service can help make sure that an individual’s wealth continue to grow. If you are part of a wealthy family or have worked hard to earn your own wealth, then choosing a private asset management or wealth management firm to help you safeguard and grow your investments and assets is an important step to make. Individual wealth management companies have in depth knowledge of the investment and banking industries and can give you sound investment advice to ensure that your wealth continues to grow.

Tips for Choosing a Private Asset Management/Wealth Management Firm:Why choose a private asset management/wealth management firmUsing the services of a private asset management company can help you safeguard your wealth better than making investment choices on your own because individual wealth management professionals have extensive banking and investment expertise. A private asset management firm can help you save money on taxes, asset reporting, estate planning and wealth protection. An investment management service can help you pick the best investments that will give you the highest returns with little risk.

What do you need from your individual wealth management firm One of the first things you should do is make sure you need the services of a private asset management firm. If you like to be in control of every financial decision that affects you, it might be a better idea to find a reputable brokerage firm to help you set up investments. There are even online brokerage services that allow you complete control of your investment decisions. A wealth management firm might be a good idea for help with other services like estate planning or asset reports and general asset management rather than investment management services.

Do you need a private asset management firm or a financial advisor Before you sign on with a wealth management firm, take the time to research your options and make sure an individual wealth management firm is better than a private bank or financial advisor at a larger bank. Large banks may have more resources available to help you manage your wealth, such as well-trained financial analysts on staff or state of the art trading facilities. However, the problem with large banks is that they will have an agenda in working with you, and may be biased towards their own investment or banking services.

What are the private asset management firm’s credentials You need to know the people who will be managing your assets and investments, so do some research about the firm’s members before your sign up with an individual wealth management firm. Check the credentials, education and experience of your financial advisors. Make sure that all partners in the firm are trained and qualified CPAs or CFAs because you want your wealth management team to be the best. Find out what financial institutions they work with, and make sure they will manage your wealth in the way you see fit. You should also check the banks they work with to make sure that your investments will be secure.

What type of investment management professionals should I use? The right wealth management firm or investment management service will have trained professionals on their staff. When looking for a trained private asset management professional, there are three credentials to look for: a Certified Financial Planner, a Certified Investment Management Analyst or a Chartered Financial Analyst. Each one of these certifications can only be earned by rigorous coursework and exams, and only professional financial advisors will have these designations. A Certified Financial Planner can help you create an overall financial plan for your wealth and help you with investment management services.

A Certified Investment Management Analyst is specially trained in managing money through investments and has extensive knowledge of brokering investments, using options and futures, insurance and managing money. A Chartered Financial Analyst is often called an investment manager or portfolio manager, and they earned their CFA throug h years of investment experience and several rigorous exams.

Will there be fees charged by an investment management service? Third, before you sign with a private asset management firm, make sure you read the small print. Hidden fees will often lurk in many contracts and can sneak up on the unsuspecting client. Many firms will also charge a fee to enter an investment fund, and the fee may seem low. However, an unscrupulous investment management service will suggest that you change funds often, and as a result, you will pay those small fees several times over.