Your choice of investment opportunities is largely restricted. Outside the familiar world of stocks, bonds, exchange-traded funds and other pre-packaged products, there is a whole world of alternative investments that you should be aware of. Alternative investments include venture capital, private equity, hedge funds, real estate investment trusts, commodities as well as real assets such as precious metals, rare coins, wine, and art. These assets usually perform with low correlation to stocks and bonds, may be difficult to value, and are generally less liquid than traditional investments. With some exceptions, only accredited investors are able to invest directly in the assets described above. This restriction exists because many fund managers rely on private placement registration exemptions that limit their investor base to sophisticated investors. Here are seven common types of alternative investments:
- Private Equity. There are more private companies than public companies, and many of them take on investor capital. Private equity is a broad term encompassing the entire investment spectrum.
- Direct investments in start-ups and private companies. Investors can directly invest into start-ups and private companies as opposed to investing in a private-equity fund.
- Venture capital. This is a subset of private equity specializing in the investment in early stage to growth stage companies.
- Real assets. These are physical or tangible assets that have intrinsic value such as real estate, oil, precious metal commodities, and agricultural land.
- Hedge funds. These are pooled investment funds that are formed to invest in a variety of strategies and asset types.
- Fund of funds. These are large vehicles that form funds to invest in other alternative investment funds.
- Private placement debt. Investment in debt is also a large market in alternative investing. Private placement bonds are not issued or traded publicly and are not required to be rated by a credit rating agency.
Our financial experts at Black Harbor Wealth Management are here to answer all of your alternative investment questions. Schedule your complimentary consultation today.