Is a Mutual Fund an Alternative Investment?
The simple answer is yes. Mutual funds are a type of alternative investment. Generally speaking, young professionals and other newcomers thinking about investing will have some familiarity with the stock market. You buy shares in a company and stand to profit when the price of those shares goes up. It’s fairly easy to understand, and there are plenty of trading strategies out there to help you reach your goals.
It’s important to understand, however, that you assume a high degree of risk if you invest all your money in a single asset class. You can buy shares in several different stocks, sure, but that doesn’t truly diversify your portfolio. You’ll still be at the mercy of stock market trends, and you may lose your entire portfolio in an especially bad market. To truly diversify your investment portfolio, you’ll need to invest in different types of assets across different industries. This is where alternative investment funds come in. Here are just a few examples.
A mutual fund pools money from multiple investors in order to buy different financial assets like stocks, bonds, or money-market assets. These funds are typically managed by a financial advisor who acts in the interest of the investors. The most traditional mutual fund is the equity fund. Equities are your stake in a company, and an equity fund buys stocks in a variety of different companies. Sometimes equities are combined with bonds to create a more balanced fund. Money-market assets, like certificates of deposit, make it easy to add fixed income to a mutual fund. These are popular alternative funds because they offer inherent diversification.
This is one of the more popular alternative investments since real assets tend to increase in value over time. This isn’t always the case, of course, and your rate of return will depend on what you buy. If you were to invest in a mall in a city that was going downhill, for example, you wouldn’t see increased property value.
It may seem intimidating, but even beginners can become real estate investors. With real estate funds, you can invest directly in properties, purchase shares of real estate corporations, or purchase funds in a real estate investment trust (REIT). A REIT is a corporation that owns, and may operate, income-generating properties like apartments, stores, data centers, and warehouses. They can make money through equities, mortgage payments, or a combination of the two, and they’re open to investments from the public.
These are raw materials, often agricultural, that can be bought and sold on the stock market. Common examples are livestock and crops, though metals and other materials can be considered commodities as well. These are generally safe alternative investments because such basic goods are necessary for everyday life. They also offer some protection against inflation since their value increases along with demand.
IP is an intangible asset class that includes creations like artistic works, brand names, patented inventions, and more. A company’s IP is essentially the brand itself, rather than its products, service, or physical property, and it’s estimated that IP can account for more than 80% of a company’s total value. This is because there’s no limit on how much the value of an IP can increase. The better a business performs, the more valuable its name becomes. IP can also be used in licensing agreements or as collateral. Unlike physical properties with fixed values, the limit of intellectual property lies with the owner’s imagination. Good ways for owners to invest in their intellectual property include brand trademarks or patent exchange.
While there’s no way to eliminate the financial risks of investing, the more non-traditional investments you have, the more protected you are.