Diversifying Investment Portfolio with Alternative Strategies
In the investment world, there is no such thing as 100% safe and risk free investment. Remember, all investments whether traditional or alternatives have risks involved. However, it is best if investors don’t put all their eggs in one basket and diversify their portfolio by using different investment strategies.
In the world of volatile markets and changing economies, they may see that investments are risky endeavors. Why then do companies and people continue to invest, buy, and sell stocks?
The truth is that investments provide financial security in the present and even the future. Investments are often treated as another source of income and are highly encouraged for a more secure future. These days, having just one job is no longer enough, and investments allow people to achieve financial growth and stability.
What people should include in their financial knowledge and plans is a portfolio. This portfolio groups together financial assets like stocks, currencies, mutual funds, and the like. The goal is to expand the economic vision by diversifying the portfolio.
Gaining more financial knowledge cannot be emphasized often enough. According to a study by Margarida Abreu and Victor Mendes on financial literacy and portfolio diversification, “investors’ educational levels and financial knowledge have a positive impact on investor diversification.”
Knowing is half the battle, and it is best to be well-equipped with extensive knowledge of all the options available.
Common investments and alternative investments
When the word investment is mentioned, what comes into mind are stocks and bonds. These two are types of investments that have remained popular among the masses. Stocks are ownership shares. An investor owns stock shares in a company that has been publicly traded. Bonds, on the other hand, are loaned money to the government or a company. When the bond matures, the principal is paid back with interest.
These are two of the most popular investment options and are followed by mutual funds and exchange-traded funds. Mutual funds pool together different investors’ money and invest it in stocks. This is one way to own shares in blue-chip companies that are internationally known and have a high return rate of investment. Exchange-traded funds are similar to mutual funds but are bought and sold on the market.
Other collective investments are certificates of deposit (done with banks), retirement plans (an example is the 401(k) plan), and options (another way of buying stocks).
Since the recent global and economic crashes, investors have begun to understand the need to diversify their portfolios with alternative investments. Alternative investments are those that veer away from the stock market, cash equivalents, and bonds.
Examples of alternative investments are physical real estate, crowdfunding, peer-to-peer lending, online business, commodities, fine art, and digital assets. These may seem like smaller ventures, but these continue to thrive even during market crashes.
Even before a global pandemic was declared, markets began to crash with Apple making its announcement first that it will not reach its projected sales in the first quarter of the year. By the time the world was put on a standstill with lockdowns and quarantines, many companies were out of business or closed stores worldwide.
Since large companies failed, there were those businesses, investments, and trading that thrived. As the world has become digitally reliant, it became even more so during the global crisis. Some companies were kept afloat with their sales and services on an online platform. Serious investors wasted no time in securing their digital assets, and others took to arbitrage trading to gain more from market discrepancies.
Digital asset as an alternative investment
A digital asset is a new option for an alternative investment, and business in it has proven to be very lucrative.
According to a study published in Digital Science in 2018, a significant number of investors “are willing to allocate their wealth in such specific assets in 2018.” This then has led to the increase of the demand for digital assets, which, in turn, affected its prices significantly. “Investors are considering such an instrument as an alternative investment.”
Definite advantages to investing in digital assets are its form itself. A Digital asset is considered as a virtual currency that cannot be counterfeited. It cannot also be double-spent and is not limited by any government or law.
The report made by Prance Gold has stated that “The cryptocurrency market is currently at US$ 268 billion, with an all-time high of US$ 744 billion in 2018.”
“With the increasing number of digital assets and exchanges, an increase in trading and investment opportunities are arising for traders and investors. There are different types of strategies that can be taken advantage of, and choosing the right one will help increase the profitability of the digital asset investment,” says the same report.
Alternative investments will help diversify your portfolio, and digital assets are the future.
Are alternative investments good for you?
In the world of investment, a “100% safe investment” does not exist. All investments, whether traditional or alternatives have risks involved. However, alternative investments are usually considered a sound addition in diversifying portfolios. Always do extensive research and arm yourself with as much knowledge about the alternatives market before investing money.
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