7 Best Alternative Investment Strategies For Your Portfolio

The COVID-19 pandemic has shown how traditional investment assets like stocks and bonds remain vulnerable to market turbulence and inflationary pressures.

If you’re hoping to mitigate risks during times of uncertainty or hedge against inflation, you should consider using alternative investment strategies to diversify your portfolio.

Alternative investments are set to grow between 18 to 24% by 2025 and include asset classes like real estate, commodities, private equity, and even collectibles such as wine.           

Let’s discover what an alternative investment is and explore seven high-yield alternatives. We’ll also look at why you should invest in them, whether they're regulated, and how Vinovest helps you invest in wine, a lucrative alternative asset.  

What Is an Alternative Investment?

An alternative investment is any financial asset other than the traditional asset classes like stocks, bonds, or cash. Many of these assets have high minimum maintenance fees and are often available only to high-worth individual investors or institutional investors.   

But even with varying accessibility and structure, you’ll find alternative investments share some common characteristics:

• They don’t fluctuate with market trends like traditional investment types. 
• These assets are comparatively less liquid and cannot be easily redeemed or converted to cash.
• Since alternative investments are an emerging asset class, there’s limited historical data about their risk and return potential. 
• They require a higher minimum initial investment compared to stocks and bonds.
• Alternative investments have higher return potential than traditional assets.

Next, let’s look at some of these high-yield alternatives.

7 High-Return Alternative Investment Strategies

Here are the top seven alternative investment strategies you can use to diversify your portfolio:

• Collectibles
• Private Equity
• Hedge Fund
• Real Estate
• Private Debt
• Commodities
• Structured Products

1. Collectibles

Collectibles are tangible assets such as fine wine bottles, art, vintage cars, sports memorabilia, coins, and more that you can purchase and sell later on at a higher price. 

However, investing in this alternative asset class is a good strategy only if you don’t mind the lack of returns during the extended holding period. Most collectibles also have higher acquisition costs and are vulnerable to damage if stored improperly. 

But investing in collectibles is a strategy that can deliver handsome returns if you're ready to handle the inherent risks and hold your collectibles long-term.  

Now, fine wine is one of the collectibles that are more resistant to market fluctuations than mutual fund, ETF, and other alternatives. 

It also guarantees better long-term returns at minimal risk. In fact, wine has yielded 13.6% annualized returns over the past 15 years, beating the Dow Jones (7.8%) and S&P 500 (8.58%) indices.

So, how can you get started with investing in wine?

How You Can Easily Invest in an Alternative Asset Like Wine

Vinovest is a leading wine investment platform that lets you easily buy, store, and sellthe world’s finest wines. 

You also don’t need to be an institutional investor or a wine expert to invest in wine through Vinovest. Instead, you can get assistance every step of the way from an expert wine portfolio manager who can provide sound investment advice. 

Vinovest offers several benefits like:

• Optimal storage of your wines in temperature-controlled, bonded warehouses
• Provenance and authenticity check of all wine bottles you buy
• Best prices for bottles as they directly source these from reputed wineries, auctions, wine exchanges, and wholesalers
• Access to limited new wine releases and private winery sales
• Comprehensive wine insurance policy
• Lower overall costs as Vinovest charges you only 2.5% (or 1.9% for a portfolio above $50,000)
• Hassle-free wine delivery to your doorstep or to your buyer

Lets move on to the other alt investing strategies you can try out.

2. Private Equity

Private equity investment is a capital investment made into private corporations or companies not listed on public stock exchanges.  

Depending on your investment objective, you can adopt any of the following alternative investment strategies to benefit from private equity:

• Venture Capital:Venture capital providesfunding to new enterprises or early-stage start-ups so they can scale up and grow. Investing venture capital in upcoming enterprises promises you above-average returns and a stake in the company’s ownership.
• Growth Capital: Unlike venture capital, growth capital is the asset offered to mature companies to help them develop or restructure. With this private equity investment, you acquire more stake and decision-making power in the company than venture capitalists.
• Buyout:Buyout is the payment made to acquire the majority stake or controlling interest in a company. The typical strategy is to acquire an undervalued or underperforming business, transform it, and go public once you begin making profits. 

3. Hedge Fund

A hedge fund is an investment pool actively managed by a fund manager who aims to deliver higher returns from liquid assets like stocks, mutual funds, pension funds, and more. 

With hedge funds, you can earn significant returns in the short term at high risk. However, keep in mind that you might need to adhere to specific requirements or to be an accredited investor to gain access to this alternative asset class.

Some common strategies used by hedge funds to maximize returns are:

• Alternative Risk Premia: This involves alternative strategies adopted to deliver greater returns through a ‘premium.’ You earn the premium by leveraging market anomalies or taking systematic risks.
• Managed Futures: This is an alternative investment strategy in which a professional fund manager actively manages a portfolio of futures contracts. Managed futures aim to reduce your portfolio risk while making profits from the arbitrage created by mispricing trends in different industries. 
• Global Macro: It is an investment strategy developed by hedge funds according to the socio-political and economic outlook of a country or its macroeconomic policies. Given the absence of restrictions, global macro funds allow you to invest freely in any kind of security.  

4. Real Estate

Though real estate is one of the world’s oldest asset classes, investing in it is still considered an alternative investment strategy.

You don’t have to be an accreditor investor to make real estate investments. You can either buy a property and earn a fixed income by renting it out or invest in a Real Estate Investment Trust (REIT.) 

Real Estate Investment Trusts are private or publicly-traded companies that own and operate income-generating real estate assets. They can be ideal investment alternatives if you prefer to secure returns without spending significant capital on real estate purchases. 

5. Private Debt

Private debt refers to an investment made by private investors and private markets that aims to acquire company debt. 

Investing in private debt is a strategy that delivers returns through interest payments and a potential increase in the borrower company’s capital value. Since debt is a lower-risk asset class than equity, you can expect lower returns compared to private equity investment.

With private debt funds, you’ll earn risk-adjusted returns during lower interest rate periods. 

6. Commodities

Commodities are assets that have been traded for centuries and usually include natural resources like crude oil, natural gas, agricultural products, and precious metals.

A commodity is a real asset whose value depends on supply and demand—greater demand leads to higher prices and ultimately more profit for investors. You can trade them directly in the cash market or through derivatives like options and futures. 

Since commodities are alternatives unaffected by market fluctuations, they can also be your hedge against inflation.

7. Structured Products

The value of these alternative investments is connected to an underlying asset, group of assets, or indices. Structured products are relatively new investment alternatives and include collateralized debt obligations (CDO), mortgage-backed securities (MBS), and credit default swaps (CDS.) 

Though risky, this alternative investment strategy provides a customized mix of products to meet your needs. But they are mostly created by investment banks for hedge funds, retail investors, institutional investor companies, or venture capital firms.

Why Should You Consider Alternative Investments?

As the value of conventional asset classes is tied to market trends, you can counter some of the risk by investing in alternative investments. Investing in these alternative assets offer advantages like:

• Low correlation:Alternative investments like private equity, hedge fund, and real estate have little to no dependency on traditional asset classes and remain unaffected by any downturn in the market.  
• Inflation hedge: Investing in alternative investments like hedge funds, collectibles, commodities, private equity, and more can be an effective hedge against inflation.
• Improved risk-return profile: Your portfolio’s risk-return profile improves, and you earn better returns by investing in alternative assets.

Are Alternative Investments Regulated?

The regulations for alternative investments are ambiguous.

Though most alternative assets are regulated by the Securities and Exchange Commission (SEC) in the US and Financial Conduct Authority (FCA) in the UK, they aren’t registered with these bodies. 

Some alternatives aren’t even controlled by any regulatory body. 

However, all alternative investments in the US fall under the scope of the Dodd-Frank Act, which allows the SEC to review its practices.

Add Alternative Investment Strategies to Safeguard Your Portfolio!

Alternative investment strategies like investing in private equity funds and hedge funds can help you achieve your investment objective by boosting returns and diversifying your assets. 

As these investments remain unaffected by market lows, alternative asset allocation makes your portfolio more robust and risk-resistant.  

If you hope to leverage the benefits of an alternative investment strategy by building a high-return wine portfolio, visit the Vinovest website right away.