You’re on top of your finances, are sticking to your budget and are ready to take the next step: investing your money. The first thing that may come to mind is buying stocks or bonds, but aside from investing in the stock market, there are several alternative investment opportunities worth considering. In this article we’ll go into a few reasons why alternative investments could be a great addition to your investment portfolio and how to access alternatives at any budget.
What are alternative assets?
In short, alternative assets are any type of assets that aren’t stocks or bonds. The most well-known examples include assets such as real estate or private companies. However, there are plenty more alternative assets to consider and in this article we’ll narrow our focus on tangible collectibles such as art, fine wine or handbags.
Investing in collectibles doesn’t get nearly as much attention as investing in other alternatives such as cryptocurrency or startups. That is mostly because while collectibles can make excellent investments, investment-grade goods can easily cost over £100,000, meaning they have traditionally been out of reach to all but the ultra-wealthy. However, with new companies launching that allow you to invest in fractions of alternative assets, there is now a chance for retail investors to get in on the action too. Instead of having to buy the entire item, you can buy a small percentage of an asset and benefit from any price appreciation.
Let’s look at some of the top reasons why you may want to consider investing in alternative assets.
Invest in a physical asset
If you’re new to investing, understanding stocks or cryptocurrencies can seem overwhelming and confusing. Both have been extremely volatile over the past few years and the abstract nature of financial markets has turned some people off from investing. If this resonates with you and as a result you’ve put most of your money in a cash savings account, you may want to consider investing in real, physical assets. Compared to understanding price movements of crypto or volatile stocks, it can be easier to see why a vintage watch that was only produced in limited quantities is coveted and can go up in value over time.
Generate investment returns
The idea behind investing in collectibles is that these assets not only hold intrinsic value, but may appreciate in price. If we look at historical data, most collectibles have indeed generated strong returns. According to the Knight Frank Wealth Report, classic cars have returned 193%, fine wine 127% and handbags 108% over the past 10 years. Moreover, some of these assets have shown to be more stable than the stock market. For instance, the price of fine wines has proven to be less volatile during major events, such as the onset of COVID-19. There are various reasons why these items go up in price over time, such as increasing scarcity and items like wine and whisky getting better with age. Read more about this in our article on the economics behind the collectibles industry.
Diversify your investment portfolio
Perhaps you do already have a traditional investment portfolio, but don’t want to put 100% of your money into the stock market, in case of a market downturn. Alternative assets can be a great way to diversify your investment portfolio. One thing that most investment managers agree on is that you should never put all your eggs in one basket, and investing in items such as luxury watches and fine wine can be a great way to manage your risk. These assets hold a low or no correlation to the stock market, which means that if the market goes down, the value of these items remains (largely) unaffected and it can help smooth out your returns over time.
Invest in what you love
Lastly, investing in alternative assets can bring fun and excitement to investing and it enables you to invest in what you love. Few people enjoy reading long company reports, or staring at charts, but what if researching what you already love can help generate investment returns? Whether you’re a car fanatic or are in love with Hermes handbags, you can now own a piece of something you’re passionate about by investing in fractions of the item. Bonus point: it will make for great dinner table conversation!
Accessing Alternative Investments
Want to get started with alternative investments? It may be easier than you think! New technologies are opening up new possibilities. In the same way low-cost brokers have made investing in the stock market easier and cheaper over the past few years, new platforms are now looking to set off a similar trend in the space of alternative assets. In the UK, Koia is building the first platform of its kind, allowing anyone to invest in what they know and love. Koia fractionalises collectibles so you can buy, say, 1% of a vintage Rolex watch. Today, you can start investing with any amount, finally making alternative assets accessible for any investor, big or small.
This guest post was written by Iris ten Teije, co-founder of alternative investments platform Koia.