How Are Investors Moving From Traditional Investments To New Alternatives?

By
Naga Sulakshmitha Bezawada,
How Are Investors Moving From Traditional Investments To New Alternatives?

The 21st century has been witnessing many novel evolutions in every discipline. With the advancement of science and technology, the experts in many domains are coming up with the best methods for efficient outcomes. And that is how every industry has slowly hopped into modern instruments.

The days where one could invest their money only through stock exchanges, chit funds, or fixed deposits have long gone. Now there are plenty of ways to earn money potentially through investments and are termed Alternative investments. Also, however, these investments aren't confined only for high-income individuals or tycoons. Regardless of which income bracket you fall, there are sources through which you can earn high returns. The modern investments are offering a good opportunity for every individual to earn a steady income.

But before we dive deep into knowing Alternative investments, let us know the basic concepts of the Traditional investment and Alternative investment.

Traditional Investments:

The basic concept behind traditional investments is to invest money in the well-known assets. Stock exchanges, bonds, fixed deposits, etc. come under this category.

Alternative Investments:

Considerably, all the current modern investments are Alternative investments.  Investing in Real estate properties, Businesses, Mutual Funds, Commodities (like gold and silver), company fixed deposits, etc. come under Alternative investments.

So, now let's look at the different types of Alternative investments and have a quick overview of them. The following investment opportunities considerably fall under the best modern investment methods.

  1. Real Estate Properties

Investing in Real estate properties is one of the booming sources of high returns. You can directly buy a property, sell it, or lease it. It seems likely more profitable when you buy a property and sell it for capital gains. However, you must go through a detailed study about the property and the location before you invest because this investment involves some risks.

  1. Mutual Funds

Mutual funds are the best investment for those who are not active investors and for people who don't follow the market trends. Mutual funds make you choose a wide variety of sectors. The risks involved in this are absolutely zero since the fund manager makes the decisions. However, you will be charged a 1.25-2% of your annual income as a fee to him.

  1. Commodities Like Gold and Silver

Investing in Gold and Silver are precious kinds of investments. You could buy gold and silver in the form of coins or bars and sell them to the local jewelers when you get a good price of your investment. Usually, you will get a profit of 3-10%.  Since the market of these commodities changes dynamically, the risks also vary accordingly.

  1. Invest in Growing Business

Instead of starting a new business, investing in a new business is more profitable. You can invest money in a budding start-up and gradually become the co-owner of that business. The only thing that matters here is making the right decisions at the right times. You need to take an active interest in the business models and go through the steps in the business. It is quite risky because you need to make good decisions, or else it will keep your money at risk.

  1. Company Fixed Deposits

The company fixed deposits are mostly preferred due to their high interests. The best-rated company fixed deposit offers about 10-15% of interest. The right decision about the investment duration should be made so that you don't have to withdraw your money before the investment's maturity to get a good profit from your investment. It also has high risks when compared to a bank fixed deposit.

  1. Public Provident Funds

Public Provident Fund(PPF) is one of the safest investment options to save your taxes and fund your retirement. Tax-free yearly interest and Annual compounding are the two key factors driving the investors to turn into this. The impact of compounding is enormous since the PPF offers a long tenure of 15 years. This is considered as a safe investment because the interest earned is backed by a sovereign guarantee.

Differences Between Traditional and Alternative Investments:

Liquidity:

Traditional investments carry the tag of a high-liquid profile. We can access them quickly at any point in time during our investment period. Also, these investments allow investors to redeem their funds whenever they want to. Coming to Alternative investments tend to be illiquid, especially if the investment is in a property or debt.  To be precise, we can't just liquidate our assets to get some cash.

Investment Returns:

Traditional investment doesn't require a lot of amount for an investment. And, the returns are also a bit lower in these investments. While, in alternative investments, the investment amount is likely higher, and the payout is higher comparatively. However, we can't conclude these facts vaguely because the investment returns depend on market trends and growth. So, it is also impossible to predict our investment returns in either case.

Risks:

Traditional investments are likely more secure and tend to produce steady income. Although there's liquidity in the investment, the investors might suffer if there is a market downfall. And it isn't easy to bounce back to profits in this scenario. While in alternative investments, regulation of assets is not cast-iron, which might leave you open to fraud if you don't perform stringent due-diligence. So, in whichever asset you are investing in, primarily perform the due-diligence to avoid such risks.

Guidance:

To find a trust-worthy investor who'll guide you through the strategies and share their trading secrets is hard in Traditional investments. However, you can hire a financial advisor but may cost you more than your investment amount. There are many people out there coming to alternative investments, whom you can trust and seek guidance from them. Many investment platforms, advisors, and only companies will also erase all your doubts and fears while in alternative investments.

These are the pros and cons of traditional and alternative investments. However, both traditional and alternative investments play a crucial role in wealth creation. It is your definite choice that makes a change in your investment portfolio.

The best investment strategy is to keenly observe and explore how the financial world could do to your future investments. Today's individuals show more interest in alternative investments because of its vast options and good portfolio management. However, no reward comes with a zero risk. But, if you can manage to invest in the right asset, you can reap the best of benefits and exceptionally higher returns.

FAQs:

The stock exchange, bonds and fixed deposits are the examples of traditional investments.

Traditional investments tend to generate low income and we may not be able to find an advisor to guide us to tackle the risks.

Real estate investments, Public Provident Funds(PPF), Mutual funds, equity funds, Commodities like gold, silver, Bit coins, Company fixed deposits, etc are some of the alternative investments.