The recent Eurozone crisis has exposed the instability within the traditional investment markets. The value of bonds, stocks, shares and pensions are in jeopardy amidst the uncertainty of the current economic climate. This has encouraged an increasing interest in alternative investments as investors look to secure their portfolio.
Alternative investments offer a safe haven from the financial crisis, adding diversity and balance to existing traditional investments. Commodities are the most popular alternative investment as they are tangible assets. As time progresses they will retain their value. For example, share value can plunge almost instantly, whereas if you invest in 3oz of gold you know that its worth will remain relatively stable.
Typically, an alternative investment would be in commodities that have intrinsic value as well as market value. Such commodities can range from fine wines to precious metals. A fine wine, for example, becomes more rare and therefore more valuable over time—with wine, patience really is a virtue.
If you are looking to alternative investments to broaden your portfolio, there are three key things to consider. Firstly, tangible objects such as precious metals, stamps or vintage records will continue to exist despite fluctuations in the markets. On the other hand, equity not valued against a physical asset is intangible and can be threatened by even the slightest downturn in the stock market.
The second rule is diversity. It is not sensible to invest all your assets into one article, even if the return is attractive. A diverse portfolio acts as protection to cover you should one of your investments fail.
The third rule is to consider the scarcity of the asset—naturally this will affect the ROI in the short and long term.
Investing in tangible assets is the most rewarding way to hedge against inflation. With the QE3 pumping an estimated £75 billion of new money into the economy, it is inevitable that the value of the pound will decrease dramatically, leaving many investors concerned for their assets. Precious metals hold their value regardless of inflation, making them a secure bet for investors in the current economic climate.
An increasing number of investors are buying into the precious metals market. Silver is sometimes overlooked as a precious metal as it is not as rare as gold. However, the demand for silver within various sectors of industry means its value is high. With these qualities, silver has remained stable throughout the Eurozone crisis, with it never falling far from the $30/oz mark.
Gold has increased in value by 660 per cent in 10 years, certifying its place as one of the most valuable metals. And now is as good a time as ever to invest in gold, as its value has dropped slightly to $1,570/oz and is not likely to drop again in the near future. For those investors that are in it for the long haul, this investment is quite literally worth its weight in gold, as the value of gold is set to exceed $2,000/oz over the next few years.
Alternative investments give the investor security due to their longevity and the tangible nature of the assets. With the worldwide financial markets looking troubled, now is the crucial time, as investors, to broaden our horizons.