Alternative Investments: What are the best options?

A topic that has been gaining prominence lately is alternative investments, but do you know what they are and how they work?

In the current financial scenario we live in, many investors have started to look for new ways to do what they have always done, and as a result, alternative investments have taken their place.

Mainly because they are opportunities that can offer diversification and significant return potential, just like traditional investments.

And the more you understand the importance of diversification, the more you will be interested in these types of investments.

They received this name because of the difference between them and traditional financial assets. They are not directly linked to the financial economy, like stocks, bonds and others, these are linked to what is called the real economy.

Throughout this article we will explore more about alternative investments and the options available on the market.

What are alternative investments?

Alternative investments are a diversified category of financial assets that differ from traditional ones, such as stocks and bonds, they do not fall into the fixed income category and others.

So alternative investments have this point of difference compared to traditional investments, and they are usually what we call illiquid, which are not easily converted into cash.

This type of investment is related to the real economy, which is fundamental for the economic growth and development of a country, in addition to being responsible for the generation of wealth, employment and income.

They are great options for generating and accumulating wealth, diversifying your portfolio and generating relatively high returns.

However, alternative investments present higher risks, requiring the investor to be prepared to enter this market.

Many are more complex in terms of structure and operation than traditional ones. So if this is your interest, you will need to study and acquire more knowledge.

Alternative investment options

Now that you are more familiar with the subject, we can move on to action and understand, with examples, the options for these types of investments that are circulating on the market.

See what they are:

1 – Cryptocurrencies

Extremely well-known in the financial market, cryptocurrencies are one of the highlights when we talk about alternative investments and portfolio diversification possibilities.

Cryptocurrencies are digital assets made based on blockchain technology, and are outside the control of central authorities, that is, they are decentralized.

Transactions involving cryptocurrencies are secure, transparent, but very volatile and pose a high risk.

Among the options on the market we can mention Bitcoin (BTC), which is extremely famous, but also Ethereum (ETH), Litecoin (LTC) and others.

2 – Real Estate

Real estate, or real estate assets, are physical alternative investments that can be used to generate income or profit.

Although many already invest in real estate, they are considered alternative because they are tangible and use diversified strategies.

These asset options generally offer higher returns, but they also present higher risks, especially when we take into account their volatility.

The value of a property can vary over time and change as establishments around it emerge or cease to exist; many factors can influence its market value.

3 – Private Equity

Private Equity (PE) is a form of investment that involves the acquisition of equity stakes in companies not listed on the stock exchange, that is, private companies.

This modality is most used by institutional investors, private equity funds and even individuals with high net worth.

And among the advantages offered are high potential returns, especially for companies that have great growth potential.

This is also a great way to diversify your investment portfolio, as private equity is not related to public markets.

But we can't help but mention their potential disadvantages. These types of investments can be illiquid, so if you want to sell the shares it may be more difficult until the company has a solid foundation.

There is also the risk that these companies will not succeed, which will lead to the total loss of all invested private equity capital.

4 – Venture Capital

Venture capital, also called risk capital, is a form of alternative investment that consists of the investor's participation in emerging companies, those that are still at the beginning of their development.

And speaking like that, it already seems quite risky, hence the name of the investment, but even with the high risk, they also have a lot of growth potential. Especially if you have a good eye for entrepreneurship.

As these companies are still in the development phase, they cannot be traded on the stock exchange, so all purchases are made externally.

And it is possible that these options bring significant and high returns for companies that have high growth potential, also offering great diversification in their portfolio.

However, the liquidity of these types of investments can also be more difficult to achieve, and the investor will be subject to many risks in the meantime, including the risk of total loss.

5 – Commodities

Commodities are physical products that are the same or very similar to each other. They can be divided into two main categories: durable and non-durable.

Durable commodities can be precious metals, industrial, energy or agricultural products, while non-durable commodities are characterized by perishable agricultural products and natural resources.

They are considered alternative investments because they do not fit into the traditional investments we are used to, such as shares, income securities and other public investments.

Like the vast majority of alternative assets, these have great potential for profitability and returns, but you will need to have a strategic vision of the market to choose the right one to invest in.

And they also help diversify your portfolio because they are not tied to public markets, and reduce the risk of investing in just one asset.

However, commodities can be volatile, prices can fluctuate significantly and result in losses for investors.

In addition to these types of alternative investments, there are many others, and to find out which is the best option for you, you need to take into account your investor profile, your portfolio, risk tolerance and other relevant factors.