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What is an Alternative Investment?

by International Commercial Investment on October 3, 2012

There is actually no definitive explanation; alternative investments can be as wide ranging as Stamp Collections, Cemetery Land Purchase or Hedge Funds. Perhaps the simplest way to categorise them would be to say that they are considered alternative because they are different to the more traditional assets and investments investors have been familiar with in the past, such as stocks, shares or bonds. Alternative investments can however be classified as directly held non regulated investments.

Of course alternative investments have always been available and utilised by shrewd investors in the past but they are now becoming a more attractive and recognised option too many investors, particularly with the marked increase in popularity of SIPPS. A report by Cap Gemini and Ernst & Young estimated that high net worth investors regularly put over 10% of their wealth into alternative investments, attracted by their strong performance and the diversification of their portfolio.

It is now widely accepted that diversifying your portfolio is the smartest way to invest; should one area weaken, this can be offset by an upturn in another. The downturn in the market in 2008 exposed many investors to the unpleasant reality that many of their investments were correlated and all performed badly simultaneously, the three most common groups being shares and bonds, property and cash held in banks or building societies.

The crash in 2008 quite literally highlighted the benefits of alternative investments which would have in many cases buoyed many investors throughout that period. Indeed alternatives are now viewed by many as an essential factor of their portfolio, particularly whilst today’s markets and economies are not viewed as stable or predictable.

Gold for example, has always been an alternative and has proven to be a far better investment than most managed funds over the last 10-15 years. There are now an increasing number of alternatives available and they have the benefit of being directly held assets; something tangible that will always retain a value, unlike stocks for example which can be wiped out in the event of a stock market crash. In addition to this, many alternative investments give fixed annual returns, a degree of security which investors can monitor and rely on. They also give the consumer the opportunity of personalising their investment choices unlike a managed fund.

The last few years have established a very different economic environment for investors; traditional choices, previously considered to be “no or low risk” now have little appeal; low interest rates, high inflation and unstable currencies have led many to reconsider their investment strategies, particularly those saving for retirement and who are now opting for SIPPS or QROPS.

Many alternative investments are SIPP acceptable and give investors greater choice and control of their personal finances. The variety and range of the alternative market is considerable and constantly expanding; this inevitably means that the quality of alternatives can also vary and it is more important than ever for the product to be subject to stringent due diligence and provided by credible partners with established backgrounds and understanding of the financial industry.

There are several factors to consider when investing in alternatives; transaction costs, the availability of clearly documented information, independent research that validates the asset value, legalities, ownership and clear exit strategies; with all of these elements in place, alternatives can give consumers strong investment opportunities. Alternative investments are directly held and clearly defined and the investor derives all the returns from this asset be it gold bar or a piece of land. The interest in alternatives is growing as consumers seek tangible alternatives to previously considered “safe” but underperforming options such stocks and shares in an uncertain economic environment.

All of our advisors are FSA qualified with strong financial backgrounds. To review your portfolio and see where the alternative market could benefit you please Contact Us.

Garry Friel
Managing Director
ICI

International Commercial InvestmentWhat is an Alternative Investment?