Key Takeaways

• Alternative investment methods are complementary to long-only positions in stocks, bonds, and cash
• Alternatives are less erratic since they depend more on the strength of each individual investment and less on general market patterns
• This asset class can also enhance total return and a portfolio’s risk-return profile

Investors are turning to alternatives in greater numbers as a way to increase returns, generate income, provide diversification from traditional investments, and accomplish their objectives. Although it might not be a retail investor’s first port of call, the alternatives market is sizable and expanding annually.

What are alternative investments?

“Alternative investments” can be described as a disparate group of investments that are distinguished from long-only, publicly traded investments in stocks, bonds, and cash (often referred to as traditional investments). Real estate and commodities, which are probably two of the oldest types of investments, are examples of alternative investments.

Alternatives also include unconventional ways to invest in specialised vehicles like hedge funds and private equity firms. These funds might enable the management to use leverage, derivatives, invest in illiquid assets, and take short positions. These vehicles may invest in both conventional assets (such as stocks, bonds, and cash) and nonconventional assets. Alternative investment management is often active.

Why invest in alternatives?

Lower volatility

Since alternatives depend more on the strength of each individual investment than on broader market patterns, they may help to lower a portfolio’s overall risk.

Broader diversification

Alternatives can be a good method to diversify your portfolio because they have little connection to conventional asset types. In the current economic situation, investors looking for alternative investments can diversify their portfolios and guard against inflation.

Enhanced returns

Through access to a wider range of investments and strategies, alternatives can raise total return and enhance the risk and return profile of a portfolio.

More opportunities

Alternatives provide you with additional choices because they give you access to a wide range of opportunities when you invest in private assets. Investors do not have to limit their attention to the public markets to avoid missing a vast number of high-potential opportunities.

Key considerations and risks for private equity investors

Illiquid

Liquidity is lost because many of these investments are often private purchases or sales. Your funds might be committed to the investment for an unforeseen period of time. It can be difficult to exit if you decide to sell.

Complexities

As multifaceted investment vehicles, alternative investments often necessitate far more thorough due diligence.

Minimum investment

Many alternative investments have high minimum investment requirements, making them potentially out of reach for many investors. Some situations will also include increased costs for you.

However, KLDX changes all of this. By leveraging blockchain and smart contract technology, we make private equity investing available to all investor types from an affordable minimum investment.

To start investing in alternatives with KLDX, start here