Alternative investing is typically a long-term investment because of its volatility, illiquidity and the level of patience required for investors.
As per traditional investing in stocks and shares, bonds, cash – holding onto alternative investments longer than twelve months offer several benefits to investors.
Not only can longer-term investing have lower capital gains tax, but it can also accrue more significant gains in a longer period.
1. Long-term hedge fund investing
For investors familiar with traditional investing, investing in hedge funds is one step to migrate to a long-term alternative investment strategy.
Hedge funds are similar to managed funds like mutual funds. Hedge funds are where a group of investors actively manages a diversified portfolio of securities. The significant difference is that they can (if they choose) take more risks than a mutual fund manager and (supposedly) outperform the market.
Because they have increased leverage, hedge funds can also be riskier. Another caveat of hedge funds is that it can be challenging to get into a hedge fund.
It is up to their discretion to let new investors in the fund, usually with a significantly high investment upfront. If you are thinking about investing in a hedge fund, there are smaller outlets to consider, where you don’t have to invest millions, but tens of thousands instead.
Usually, however, hedge funds consist of accredited investors – those who are essentially high net worth individuals or have demonstrated a proven track record in investing.
Hedge funds are not necessarily good either; it takes demonstrable management and a proven track record to continuously outperform the general market.
Furthermore, several hedge fund owners are notorious for their dealings and the amount of money they make for themselves and their investors. Hedge funds purchase large sales of a company to elicit change to be more profitable for shareholders.
Some hedge fund managers promise to deliver and fail to do so.
Hedge funds are definitely a long-term investment, but if you consider this path, ensure you do your due diligence of the hedge fund performance.
2. Long-term property investing
Before the property bubble burst, it was almost common knowledge to non-investors to invest in housing. The property market is varied -it can include land, commercial buildings and residential properties.
After the 2007-2008 subprime mortgage crisis, the drop in house prices was at the forefront of everyone’s minds because it damaged working-class households everywhere.
Working households took out mortgages to build new homes and grab up land because they sought profit and investment potential.
Fast forward to 2021. Despite the uncertainty surrounding COVID-19, investors wonder if it’s time to get back into the property market.
Culturally, more millennials are renting rather than buying because of skyrocketing house prices. And it is not only the initial purchase price. The cost of owning a home is too much for their already stretched monthly paycheques.
What does this mean for investors?
Millennials must live somewhere. If investors have additional funds, then this is an excellent opportunity to invest in apartment complexes and property in metropolitan areas that cater to younger professionals who will be renting.
There are many opportunities here. Investors can invest more than putting down a lump sum deposit. Property crowdfunding is a new way for investors to put down a small amount of money in million-dollar deals whilst seeing great returns in their investments.
3. Long-term commodities investing
Trading Commodities has been done throughout time.
Commodities investing can include agricultural crops, oil and fossil fuels, precious metals, diamonds and other minerals.
If you examine the current oil prices, you can picture how volatile the commodities market can be.
It is this volatility why commodities investing is a long-term commitment. Investors will need to burden the several ups and downs that commodities bring.
Oil is the perfect example. When the price per barrel plummeted, oil companies, even when stopping production, could not stem the price crash.
As with investing, price drops mean an inevitable rise. This is where investing in commodities can be an excellent strategy to obtain great rewards for investors.
Commodities also contain long-term value as they are hard assets, meaning that they protect against inflation.
One caveat to note, especially with oil and diamonds, is that the geopolitical environment often plays a part in the price. Whether through political negotiations, environmental concerns, or regional conflicts, buying commodities is not a passive investment. Investors must be alert.
4. Long-term P2P loan investing
P2P lending has become an area of interest for long-term investors in recent years as savings and bond rates continue to disappoint.
P2P lending, in which investors make unsecured personal loans to consumers and rewarded with average annual returns between 7 to 12%, might seem like a solution to disappointing returns in other areas.
Contrary to popular belief, most P2P sites do not handle subprime borrowers. Typically, they do not make loans to people who have recent bankruptcies or other credit-default judgements.
One of the most significant advantages to investors is that you do not have to purchase whole loans. Instead, you are investing in a relatively small amount across many different loans, reducing the risk that your investment is wiped out by a single loan default.
The platform handles all of the administrative tasks of the loans, including underwriting, closing, distribution of loan proceeds, and the collection of monthly payments. Those monthly payments are then remitted to you on each loan, less the management fee to the platform.
Meaning that investors only have to choose which loans to invest in and then collect the payments on each loan.
Investor interest in P2P lending has grown steadily over the last few years in light of the zero interest rate environment.
5. Venture capitalist investing
Venture capitalism is not for novice investors. As an alternative investment strategy, it is one of the most long-term investors will find.
It’s long-term because it is associated with newer companies, typically startups with a fast-growth mentality to making profits.
Venture capitalists are private equity companies that invest in the early to mid-growth stages of companies with long-term growth potential. Venture capitalists raise additional capital by obtaining funding from high net worth individuals and groups to invest in the company in exchange for a stake.
Venture capital into small, growing businesses is imperative if a new company will survive, grow, and expand. As a newer company, they do not have access to global capital markets.
Venture capitalism is risky because any new company could fail due to a lack of market, company mismanagement, or not attracting enough investment funds.
Because it can take a long time for a company to grow and hopefully mature into a standalone profit-making machine. It must be considered a long-term alternative investment. But returns when a company does well, can be rewarding!
Alternative investing – be patient
The nature of many alternative investing strategies is primarily long-term.
There are risks to be taken when investing outside of traditional marketplaces that can give investors some serious returns and gains on their initial investments.
Thinking about the big picture is imperative to stay focused on not losing sight of the money investors can make in the long term.
The key take away, do your due diligence and be patient.