How to Get Started in Alternative Investing
There’s a whole wide world of investments out there—are you taking advantage of it?
In the past, alternative investments were the purview of the 1%. These days, alternative investments are more accessible than ever before, and nearly 3 out of every 5 Americans (59%) are interested in alternative investing in the future.
Not sure how to branch out? Here’s a review of what alternative investing is, why it works, and how to get started in alternative investing.
What is Alternative Investing?
Alternative investments are financial assets that don’t fall into one of the three conventional investment categories:
Put another way, an alternative investment is anything that isn’t a stock, a bond, or cash. That covers a huge variety of potential investments, from art to hedge funds to real estate to derivatives contracts. They can be tangible or intangible, short-term or long-term.
Regardless of their unique features, all alternative assets have a few key features in common:
- They tend to have higher initial investment fees
- They buy and sell in small, niche markets
- They’re more complex than conventional investment assets
- They’re less liquid than conventional investment assets
- They’re less regulated than conventional investment assets
Because of this, alternative investments as a whole are considered higher risk than conventional investments.
This is why alternative investments were traditionally the purview of accredited investors and institutional investors—these were investors with sufficient capital and financial sophistication to handle the higher entry costs and higher potential losses.
Why Alternative Investing?
Given the risk and complexity of alternative investment, why did high-net-worth investors allocate 26% of their portfolios to alternative investments in 2020? High-net-worth individuals and institutional investors have long recognized that alternative investments have a few key benefits.
The foremost benefit is that alternative investments have very low correlation to the stock market—or most other standard asset classes, for that matter. This makes them an excellent tool for portfolio diversification, since they ensure that at least some of your portfolio isn’t subject to stock market whims.
In addition, depending on the asset in question, some alternative investments can act as excellent value stores and hedges against inflation. These are assets you can count on to hold their value irrespective of the larger economy or inflation. A Picasso, for example, can still hold value as a Picasso even if the economy stumbles.
Last but not least, while alternative investments are high-risk, they’re also high reward. And while they’re never going to be a majority of your portfolio (advisors generally recommend allocating 10% to 20% of your portfolio to alternative investments), they are an excellent tool to reinforce your portfolio and add strength around the margins.
How to Get Started in Alternative Investing
The good news? The phrase “high-net-worth” doesn’t need to apply to you in order for you to make use of alternative investments. These days, you just have to know your options and your goals. Here are some ideas on how to get started in alternative investing, no matter what your investment budget looks like.
Our favorite form of alternative investing is fine art, specifically blue-chip art. After all, blue-chip art prices have outpaced the S&P 500 by 180% from 2000–2018, and the global market value of privately held art is an estimated $1.7 trillion.
When we talk about blue-chip art, we’re talking about art of high economic value that is reliably profitable and expected to hold or increase in value regardless of economic conditions. This is almost always made by heavyweight names in the art world with a proven track record of auction success. To be clear, the blue-chip designation has nothing to do with the art’s value to the collector, to a museum, or even to its place in history. The designation refers solely to the work’s resale value.
This is also the best place for art investors to be, since art is a uniquely challenging asset class. Art is easy to purchase but much harder to sell, and almost all of the liquidity in the art market exists in the blue-chip tier.
Nowadays, you don’t need to be a multimillionaire to participate in blue-chip art investing. On our platform, members can purchase shares in authenticated multi-million-dollar artworks from high-growth artist markets with the highest potential risk-adjusted returns. We make those assessments thanks to the work of our expert research team, our research partners at Citi Bank and Bank of America, and our decades of art world experience. We handle the authentication, purchase, and sale, so all you have to do is buy shares that interest you.
Another good alternative investment for new alternative investors is real estate.
When we talk about real estate as an alternative investment, we’re talking about property purchased for the express purpose of turning a profit. The most common example is a rental building, such as an apartment building or office complex.
One of the best ways for investors with limited resources to get started is to try your hand at a real estate investment trust (REIT), a company that buys, sells, and manages investment property on behalf of a pool of investors. That way, you can collect dividends from an investment property without the hassle of being a landlord.
Okay, we’ll admit, this one is a bit of a loose definition of alternative investment, but it’s worth including here because ETFs make alternative investments more accessible to regular investors.
An exchange-traded fund, or ETF, is a basket of securities that can contain anything from stocks to commodities. In this respect, it’s similar to a mutual fund, and it offers rapid diversification. What makes them unique is that your shares can be bought or sold on the stock market as if they were a single stock, and you can buy or sell at any time (unlike a mutual fund).
That’s great news for investors, since ETFs are often a low-cost and accessible way to dip your toes into alternatives from gold to real estate and more.
Ready to Get Started in Alternative Investments?
Now that you know how to get started in alternative investing, it’s time to put your money to work. That’s where we can help, with the tools and resources our members need to grow their money in blue-chip art investing. Ready to get started? Fill out your membership application today to learn more.