5 Alternative Investment Approaches

WHAT ARE ALTERNATIVE INVESTMENTS?
An alternative investment is a class of investment that is not covered under any Government regulatory like RBI, SEBI, IRDA, and PFRDA. It refers to a privately pooled investment fund – a trust or a company.

Here are some alternative investments approaches that may influence your investment decisions –

# 1 FOCUS ON ABSOLUTE RETURNS
You invest to end up with more money than what you started with. It means you are looking for an absolute return: how much did you actually make, is the main focus.

Invest in assets that you believe will do well; do not invest in a product just because it's likely to outperform the market. Have your analysis on hand.

# 2 RETURNS ARE ONE-DIMENSIONAL, RISK IS MULTI-DIMENSIONAL
When it comes to investments, returns are easy to calculate. Keep your focus on Risk involved with the alternative investment asset as well. Prepare a list of the relevant risks. You need to have a clear idea of ​​the risks involved in your investment, as it will help you to take a calculated decision.

Also, if at all something unexpected happens, you will be more likely to make better decisions if you've thought about the risks before investing.

# 3 KNOW THE SOURCE RETURN
Understand what will influence and drive the returns on your investment. While you hold the investment, monitor the value of your investment.

Constantly revise your requirements of the return drivers of investment, in case they do not match your parameters or expectations rethink your investment.

# 4 UNCLEAR IS GOOD
Anything that's not traditional is alternative. An alternative investment is populated by investment ideas that may not be immediately obvious. For instance cryptocurrency.

Continuing learning, exploring, researching, studying, and looking outside your comfort zone is the key to financial success.

# 5 DIVERSIFICATION IS A MUST
Holding a mix of assets that are equally good, but which behaves differently, will leave your portfolio's return intact, and lower its risk as well.

Diversify means constructing a portfolio with very varied return drivers and risk parameters, not just different assets.

Most of us see investing in alternative investments highly risky. However, if you desire to live a successful and fulfilling life and retire with enough money to enjoy your retirement years, you must take calculated risks. This includes risks in your relationships, risks in your career, and risks in your investments.

While taking smart calculated risks is vital to reaching your goals in life, remember that taking bad risks and losing can set you back, sometimes significantly. It may help, however, to remember that taking smart risks is as simple as making wise decisions.

A Framework for Good Decision-making

I've learned a lot in my life from observing others and through my personal experiences-both good and bad. Therefore, when I consider taking a risk in any area of ​​my life, here are the questions I ask myself:
1. What are the risks? Be honest. Do not let your emotions prevent you from carefully considering all possible risks. This is where the landmines exist.
2. What are the odds of one of the risks coming true? Be truthful. Use real data whenever you can by doing research and talking to others.
3. What are the rewards? Be realistic. Can you really quit your day job and devote ten hours a week to something and make $ 100,000 a year? (Probably not.)
4. What are the odds of those rewards? Be sensible. Find out how many others have done something similar and how they have fared.
5. What other options do I have? Be creative. Do not limit yourself. Consider all possibilities.
6. Do I need to make this decision today? Probably not. Take the time you need to do your research and explore your options.

After you finish answering these six questions, remove the emotions from your decision and ask what your gut is telling you. Also, never forget about the wild card risk; you do not know what you do not know!



Source by Aditi Joshi

The Wider Appeal of Alternative Investments

Alternative investments have always held a certain allure for wealthier private investors that can also make them appealing to the masses. If premiership football managers can see the merits of owning a racehorse then it's a clear signal to millions of devoted fans to jump on the bandwagon. Alternative investment opportunities, such as art and fine wine, are now starting to form an ever wider appeal among investors.

Art as investment, for example, is now becoming more accessible than it has been historically. It has been prohibitively expensive to visit the top art exhibitions in the past, but now even this barrier is falling away.

The Armory Art Show in New York is considered by many to be the world's top art exhibition, and it charges just $ 20 per ticket. It has grown in attendance from 11,000 visitors in 2000 to 40,000 in 2005.

Prices for works of art at this show range from $ 2,000 to $ 150,000. The Affordable Art Fair, which takes place in London every March and October, gives investors and collectors access to a truly egalitarian experience. Prices for all of the works of art for sale are less than £ 3,000.

Russia provides a good example of the opportunities that can be had from art investment. The collapse of the Soviet Union in 1991 created an opportunistic economic climate when it came to Russian art. Moscow now has more billionaire residents than any other city in the world, which explains the capacity for alternative investments. In the past five years, the price of early 20th century Russian art has increased by over 30%.

There is, however, a high cost to entry in this particular market. To buy a piece by Ivan Aivazovsky, Ilya Repin or Isaac Levitan will cost £ 250,000 to £ 1m. There are some doubts over the authenticity of Russian art work as well. During the revolution in 1917 many works of art were mislaid. If you plan to invest in this specialist market it could be well worth paying for expert and unbiased advice to ensure that you do not get your fingers burnt.

Holding alternative investments in your portfolio can be beneficial for a number of reasons. They provide an important level of diversification when compared to a traditional portfolio containing equities and gilts. A run on the stock market, like we started to see last week, can often lead to a rise in the value of some alternative investments that are viewed as a safe haven for investor's cash. The risk profile of alternative investments may discourage more cautious investors but they can still play a part in a larger portfolio.

Alternative investments also have the potential to add a new level of interest to a traditional portfolio. In a world where interest in long-term saving shows to have faded, the forthcoming ability for your pension fund to own a Penny Black or two might encourage a whole generation to take a new interest in retirement planning.

The Inland Revenue issued a statement in 1999 about the capital gains tax consequences of investing in wine. Bottled wine is a chattel for CGT purposes. Gains on the disposal of chattels which are also wasting assets are generally exempt from CGT under section 45 (1) Taxation of Chargeable Gains Act 1992.

The largest question to address is whether or not the wine in question is a wasting asset. If a bottle of wine is deemed not to be wasting asset then there are still some exemptions to be had. If the disposal proceeds do not exceed £ 6,000 they are deemed to be exempt from capital gains tax.

If a set of bottles of wine are sold, then this exemption figure applies to the overall sale proceeds rather than the price of any individual bottle.

Top wines from the best vintages have demonstrated their ability to produce outstanding investment returns in recent years. Wine brokers Berry Bros & Rudd provide examples of growth in excess of 450% in a 15-year timescale. However, for many investors the high initial acquisition costs and ongoing storage and maintenance costs of wine will reduce these returns to an unacceptably low level.

The general guideline for any would be alternative investor is to stick to what you love. While objects like art and fine wine might be considered in the same league as a traditional investment by many, they should first and foremost be considered for your own consumption – either with your eyes or your mouth.

Pros and cons of alternative investments

Advantages:

o they can provide diversification within a traditional equity and gilt investment portfolio;

o they bring a greater degree of interest and involvement into the acquisition and management of investments; and

o investment returns can be spectacular when the right assets are purchased and realized.

Disadvantages:

o art has no intrinsic value. Its value is extremely subjective because it is based on current trends and tastes;

o headline performance figures may not take into account transaction and maintenance costs;

o picking a winning art or wine investment is difficult for beginners;

o there are often high costs involved with the insurance, storage and maintenance of both art and wine; and

o alternative investments do not often produce income or ongoing financial returns.

Key points

o Alternative investment opportunities are growing in appeal among investors and art, for example, is becoming more accessible.

o Alternative investments can provide diversification, allow a greater degree of interest and involvement and returns can be spectacular.

o But they do not often produce income or ongoing financial returns, while insurance, storage and maintenance of art and wine can be very expensive.



Source by Martin Bamford