Alternative investments are on the rise as investors diversify their investment portfolio. Bitcoin’s volatility and cryptocurrencies have investors on edge, as prices fell from over $19,000 to under $6,000 to start the week of February 5, 2018.
Stocks and bonds remain the top investment choices for many portfolios, but there’s the Yale endowment model, which also needs consideration. The model shows how Yale invests its $23.9 billion endowment fund.
The fund generated a 20.2% return in 2014 and averages 11% in the past 10 years.
A breakdown of the fund is an interesting model for diversification:
1. Private Equity Investments
Investing in private equity is a tricky option for investors because it can mean investment in the entire private capital market. Multiple investment strategies can be employed with this option, but 33% of Yale’s portfolio includes these private equity investments.
Investors will invest in these private equity firms.
An IPO or acquisition allows the investor to see a return on their capital. Risky, this approach requires an investor that takes a hands-on approach to investing. Researching the private equity firm and making sure that their business model is solid is key to success.
Venture capital almost falls into this form of private equity, too.
A risky asset class, venture capital allows investors with a substantial amount to invest to help fund startups that are very early on in their development process. The returns can be substantial, or the money can be completely lost if the startup never realizes its potential.
2. Musical Instrument Investments
Art has long been an investment option of the rich, but musical instruments are starting to become a popular choice, too. Maybe you don’t want to learn to play guitar, but you see a guitar from a rare manufacturer or a famous musician for sale.
This item may be worth a lot of money.
Robert Bouchet built just 150 guitars, but his classical guitar sold for $122,000 at auction. The C.F. Martin and Company’s OM-45 Deluxe, one of 15 made in 1930, sold for $554,000 in 2009. Violins, often centuries old, are also very expensive with the Stradivari selling for $3.5 million.
Art is a real asset, and high net worth individuals invest heavily in art. In fact, art makes up 17% of the rich’s’ investments. The industry is a difficult one to invest in with high capital required, but a lot of investors are seeking local artists that may have pieces that will be worth a lot in the future if their popularity continues to grow.
You can invest directly in funds that specialize in art and real assets.
ArtVest Partners is an art investment fund that you can invest in when you don’t have the capital to buy high-priced art yourself.
Alternative investments don’t need to include any of the options above either. Private placement debt is another option, hedge funds and other options are available that will allow you to invest your money in something other than stocks and bonds.
Cryptocurrencies and precious metals are two alternatives options, with the latter being a good choice for long-term investors.