Stocks and bonds?
Sure, you can keep investing in traditional assets like these — but there’s no reason to stop there.
Today, modern investors who are looking for more exciting and diverse investment opportunities can invest in almost any alternative asset.
Yep. In fact, now is an ideal time to get in on rapidly-growing digital currencies.
Real estate that you don’t even have to own in order to generate a return?
Yep. There are even apps for this kind of investment (which we’ll dive into in this article)!
Whether you’re just getting into alternative assets or are an experienced investor looking to shake up your portfolio, there are more opportunities than ever to diversify and, ideally, grow the returns on your investments.
In this ultimate guide, we’ll walk you through everything you need to know about alternative assets, including:
- What alternative assets are
- Reasons to get into alternative assets sooner rather than later
- Major alternative asset classes you should know about
- A modern all-in-one portfolio tracker for managing all of your alternative assets
What Are Alternative Assets?
While there isn’t an “official” definition, alternative assets are widely recognized as investments that fall outside of the “traditional” asset classes including stocks, bonds, cash, and similar.
It’s important to remember that this means alternative assets aren’t just once-in-a-lifetime developments like cryptocurrency or one-offs like a rare wine collection — they can even include assets that have come to be considered “normal” among modern investors, such as real estate and hedge funds.
Reasons You Should Start Investing in Alternative Assets
Alternative asset insight agency Preqin predicts that the value of alternative assets under management may reach $14 trillion by 2023 — a 360%+ increase from the beginning of their study in 2008.
In addition, institutional investors are flocking to alternative assets.
Banks and financial services providers are investing in alternative assets.
Here’s why they’re doing so — and why it’s time for you to follow suit.
To Diversify Your Portfolio
In the investment world, to diversify means to invest in different kinds of assets.
The basic idea of diversification is that a portfolio that includes several different types of assets won’t totally bottom out even if one of those assets drops in value — because, at the same time, chances are another asset in the same portfolio is growing in value.
An investment portfolio that contains a mix of assets generally experiences higher returns and lower losses than any one single asset within that portfolio.
This is what makes portfolio diversification a strategy for serious investors who realize that investing over the long-term is ultimately more effective than any “get rich quick” scheme.
To Insulate Your Portfolio from Market Volatility and Grow Returns
Along with diversification, enhancing your return is one of the key reasons to invest in alternative assets according to Michael Harris, financial advisor and partner at Verdence Capital Advisors.
How can alternative assets help you get an outsized return on your investment? By disconnecting the value of your portfolio from fluctuations in the traditional asset market.
While it’s been shown that investing in alternative assets is a great way to keep your portfolio steady even when the rest of the world is suffering from major stock market fluctuations, Harris says it’s important to remember that it’s never guaranteed that your alternative assets won’t sometimes move with the market — or even go down when the rest of market is trending upward.
"Lowly correlated means, on the spectrum of a plus one to a negative one correlation, those funds are trying to get as close to zero as possible,” Harris said. “It means that sometimes they're going to move with traditional assets. And sometimes they will move in the opposite direction. It's not a promise that those alternative investments will always perform well when markets go down."
To Cut Down on the Regulatory Red Tape You Have to Work Around
Diverse as they are, most alternative assets have one thing in common — the lack of regulation by the United States Securities and Exchange Commission (SEC).
While this likely won’t be the case forever, right now many alternative assets are loosely or totally unregulated the way traditional investment assets are. This is good news for the investor who wants to move quickly and creatively — as long as they’re well-informed on best practices as well as risks.
To Take Advantage of Unique, New Investment Opportunities
Above all, alternative assets enable investors to have a little fun by working directly with assets that reflect their interests.
With alternative assets, the tech junky can find a great outlet for diving into the world of digital assets through investments in cryptocurrency.
Similarly, an investor who hasn’t quite settled on their own home purchase can still get involved in real estate or land through real estate-focused funds and investment apps.
The unique opportunities that alternative assets provide can even help investors get in at the ground floor of what may end up being wildly successful investments — such as in startup businesses.
11 Major Alternative Asset Classes to Help Diversify Your Portfolio
Ready to diversify your portfolio, get out of the trap of market volatility, cut through red tape, and finally get excited about the assets in which you’re investing?
Then keep reading to discover the main alternative asset classes and decide which are best for you.
Commodities are physical materials and resources that can be consumed as-is or used to manufacture other consumables. Cotton, grain, beef, and gold are commonly-used examples of commodities.
Since commodities are typically uncorrelated with traditional assets like those in the stock market, they make for a good alternative asset in which many modern investors are interested.
How to Invest in Commodities
There are two relatively “safe” ways to invest in commodities.
The first option is to purchase the commodity itself — such as purchasing a bar of gold. Your return comes into play when you sell the gold.
Or, you may choose to invest in exchange-traded funds (ETFs can be set up to track specific commodities and are traded on a stock exchange just like typical stock) that mimic the changes in the value of the commodity.
ETFs can be purchased through online brokers. To get started, Investopedia has a list of brokers that specialize in ETFs.
Collectibles are anything you can, well, collect!
This catch-all encompasses everything from antiques to famous pieces of art to any rare pop-culture items that people seek out.
How to Invest in Collectibles
Similar to commodities, investors can purchase the collectibles themselves and purchase them when they grow in value to turn a profit.
Real estate is quite possibly one the most common of the alternative asset classes.
A piece of real estate consists of the land and any permanent, man-made structures on it. The term “real estate” is used today to refer to everything from plots of land to apartment units, single-family homes, commercial buildings, and beyond.
How to Invest in Real Estate
While you can invest in real estate by purchasing a piece of it, thanks to technology, there are plenty of other ways to invest in real estate investing:
- GROUNDFLOOR provides an outlet for investing in short-term real estate debt
- Cadre helps investors make commercial real estate investments
- Fundrise is a platform for accessing real estate investment trusts (REITs) — which can also be traded on the major securities exchanges
Private equity is a form of “ownership” that an investor receives after providing capital to a private business. Private equity investments are primarily made to help secure the future of a business and gain a cut of its profits.
How to Invest in Private Equity
While private equity investing is typically dominated by firms that specialize in these kinds of transactions, platforms like EquityZen and Forge enable individuals to invest in and trade shares of private businesses.
Venture capital is a type of private equity investing that focuses specifically on businesses that expect outsized or rapid growth, such as startups.
Venture capital investors should remember that, since they’re investing in companies with lots of potential but probably not much profit just yet, their investments could be risky.
How to Invest in Venture Capital
A derivative is like a “contract” between several parties that is based on speculation of what the value of a specific asset will be when it comes time to sell it. The party with the most accurate speculation makes a profit while the other(s) are only out the cost of the derivative.
How to Invest in Derivatives
Derivatives are speculative and hard to regulate, making them controversial in the financial realm and quite complex to navigate. However, if you’re interested in getting involved with derivatives, you can get started with CME Group’s derivatives marketplace.
Hedge funds are pools of funds from various investors that are actively managed to generate a return. Costs usually include both a management fee and a percentage of your return.
Hedge funds generally face fewer SEC regulations than mutual and other fund types, a fact that ironically makes them harder to access and mostly an option only for high-net-worth individuals (HNWI).
How to Invest in Hedge Funds
Generally, you’ll have to research to find the hedge fund in which you want to invest (a financial advisor can help with this) and then make sure you meet their minimum requirements.
In addition to any other rules the individual hedge fund employees, hedge funds are typically only open to accredited investors — which are individuals with an annual income over the past two years that exceeds $200,000 or who have a net worth of over $1 million, excluding their primary residence.
A Fund Of Funds
An alternative to a hedge fund is a fund of funds (FOF), which is a fund that invests in shares of other funds rather than in stocks, bonds, etc.
The benefits to investors are diversification, less risk, additional oversight from the multiple financial managers who manage each individual fund in which the FOF is invested, and a lower barrier to entry than hedge funds.
How to Invest in A Fund of Funds
A financial advisor is again a good resource when it comes to investing in funds, but you can also use an online brokerage to find and purchase shares of your FOF of choice.
Currency trading used to be something just international businesses did to facilitate transactions in other countries. But today it’s becoming more common for alternative asset investors to take advantage of exchange rates as a way to diversify their portfolios away from the U.S. dollar and other U.S.-centric investments — especially as they wait to see the full economic impact of the COVID-19 pandemic.
How to Invest in Foreign Currency
The most popular way to invest in foreign currencies is to open an account with a forex (foreign exchange) broker that’ll allow you to trade currencies — anywhere in the world, any time of the day.
WIthout trading in the forex, investors can also buy currency-focused ETFs.
Digital properties are assets that exist and generate revenue completely within the digital space.
Digital properties as an asset class is varied and growing. It can include things like domain names, trademarks, ecommerce stores, software platforms, mobile applications, websites, and even social media accounts that generate money via sales or advertising partnerships.
How to Invest in Digital Properties
One time-intensive but less costly (at least upfront) way to invest in digital properties is to build and grow one yourself — think ecommerce website, mobile game, or popular social media account.
A less time-intensive but more money-intensive way to get into digital properties is to buy one using a digital property marketplace like Flippa. For websites specifically, there are website brokers like FE International that can help you purchase websites.
Cryptocurrencies such as Bitcoin are digital currencies that live on a distributed “ledger” called blockchain. Blockchain is a database that keeps public but anonymous records of transactions. This infrastructure enables crypto to remain decentralized so no singular central authority can control it.
How to Invest in Digital Currency
Cryptocurrency exchanges like Coinbase enable you to buy and sell crypto. Coinbase also provides a “wallet” where investors can keep track of their crypto. Some more modern online brokerages also allow users to invest in crypto, but sometimes not as directly as actually buying the asset.
There are also marketplaces like LocalBitcoins where investors can communicate directly with each other to buy and sell crypto.
How to Monitor and Manage All Your Alternative Assets With Kubera
As we’ve discussed today, a diverse portfolio makes for a healthy portfolio — and a healthy portfolio makes for a happy investor in most cases!
However, what might make you a little less than happy is thinking about how you’re going to manage all of the new alternative assets in which you’re interested in investing. And, how you’re ever going to be able to integrate them with the rest of your financials to get a good read on your overall financial health and net worth.
After all, integrating with cutting-edge alternative assets isn’t exactly something traditional, “full-service” (or so you thought) portfolio trackers are capable of doing.
It was this pain point of never being able to manage and maintain all of our diverse assets from a single dashboard that led us to develop Kubera.
Kubera is the only all-in-one portfolio tracker that fits the needs of today’s modern, diverse investor.
Connect and View All Your Accounts and Alternative Assets Using Kubera’s Dashboard
What sets Kubera apart from other portfolio trackers is clear immediately: We custom-built our infrastructure to integrate with multiple financial aggregators. Between these and our easy-to-use, spreadsheet-like dashboard; you’ll be able to connect almost any type of financial account (really — check them all out here!) in no time.
If you’re interested in individual stocks or cryptocurrencies, add Kubera’s tickers to your dashboard to make educated purchasing or selling decisions when they matter most.
In addition, our flexible fields empower you to add the details for almost any kind of asset — domains, rare artwork, vehicles, businesses, and more.
For homes, vehicles, or web domains specifically, Kubera integrates with leading asset experts (such as Zillow in the U.S.) to feed your dashboard with real-time market data. That means you can always track the value of some of your most valuable assets.
All you have to do is plug in your accounts and assets to get a single view of your financial situation and overall net worth.
Get a Real-Time View of Value with Kubera’s Automated Currency Conversions
We know modern, alternative asset investors aren’t restricted by currencies — so neither is Kubera.
When using Kubera, you can enter investments in their “native currency;” input your own preferred currency; and automatically see the value of your entire portfolio in that currency thanks to our advanced conversion feature.
And yep — that even includes up-to-the-minute balances of the crypto accounts connect to your Kubera profile.
View Your Financials and Net Worth at a Glance with Kubera’s Charts
Kubera also includes beautiful charts for our more visual investors. In just a quick glance, you can easily process the health of your net worth, track how your investments are doing, and review your asset allocation to make sure your portfolio is in healthy balance.
Enjoy Privacy and Security With Kubera’s Cutting-Edge Features
Kubera’s bank-level security features include cutting-edge encryption capabilities, two-factor authentication, and partnerships with those trustworthy financial app aggregators we mentioned earlier — which keep our customers’ credentials safe.
In addition, our unique safe deposit box feature enables users to store financial info, like trusts and wills. In conjunction, our beneficiary management feature allows you to choose an heir who will automatically receive access to this safe deposit box as well as your entire Kubera portfolio when you’re no longer able to manage it.
Kubera puts privacy first by charging a simple subscription fee instead of selling your data, displaying ads, or pushing constant upsells the way other financial apps do.
Start Monitoring and Managing All Your Alternative Assets Today with Kubera
Ready to diversify and boost the health of your portfolio, insulate your assets and your wealth from stock market ups and downs, cut through bureaucracy to invest quickly and creatively, and invest in things that you’re genuinely passionate about?
Then it’s time for you to get started with investing in alternative assets today.
Kubera is ready and waiting to help you dive into diverse, modern, alternative assets.
For wealth professionals who want to work with Kubera to support your clients, contact us at email@example.com to take advantage of our white-label solution.