Alternative Investments

Alternative Investments are classed as ones that do not fit into the usual investment types such as those held on stock exchanges, mutual funds, stocks, pensions, government bonds, etc. They include things such as private equity, hedge funds, infrastructure projects, property, derivatives, commodities, forex, IPOs (Initial Public Offerings), crowd funding etc.

Most alternatives have low liquidity compared to conventional types. An example of this is that it will be a lot harder to sell a part stake in such as a Malaysian forest compared to shares in Microsoft because of the limited number of buyers. By nature Alternative Investments are usually unregulated. This means that although there are some excellent ones there are others which are highly risky. Some are outright fraud and scams. Always be wary of unsolicited calls offering fantastic returns in IPOs, fine wine, property etc. They’ll provide you with glossy convincing brochures and persuasive sales talk. These are normally from people using false names working in “boiler rooms” in some far off country. You’ll receive worthless ownership papers and receive updates telling you how well your investment is doing but in reality they’ve stolen your money.  Once the complaints start coming in they disappear off the face of the earth. So be warned. Make sure you undertake homework and due diligence to find out if the opportunity is genuine.

Having found a genuine opportunity how do you value it should you wish to sell it in the future? If we take the example of the Malaysian forest again where do you go to sell it? Where do you get a valuation from? Very often there isn’t one so how do you know what price to put on it? Think of the things that can go wrong with an investment. Trees can get diseases, forests can burn down, there can be illegal logging. In short look at all the angles in a worst case scenario. If you are being offered a 15% return per year, what’s the catch? How long have the company been in business? What profits and losses have they made in previous years? Who are the people behind the company? Can you talk to other investors?

There are excellent alternative investments out there but you have to go in to them with your eyes fully wide open. The returns can be brilliant but the losses can be devasting, you might well end up losing everything.  I cannot stress enough that it is essential that you get expert advice and undertake all the necessary checks to ensure that the opportunity is genuine. If you are new or inexperienced in saving and investing I would recommend that you stay away from this type of thing. If you are experienced and everything stacks up them by all means go for it. However I would recommend that it only forms a small part of your overall portfolio. Not more than 15% of the total amount that you have invested.

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