What are alternative investments?

Thursday, 08 December 2011 11:20

Simon Greenspan, former futures trader and Gold and Silver Specialist at City commodities broker, Tullett Brown, explains the concept of Alternative Investments and why they are so important to a diverse portfolio.

As the recent global financial crisis has shown, the value of traditional investment vehicles such as bonds, stocks, shares and pensions can be wiped away in the blink of an eye. This has led to a huge interest in alternative investments. But what are they? And why are they useful?

A strong investment portfolio should always have the correct balance and diversity needed to limit exposure but it also needs to be agile and robust enough to adapt to a constantly changing world.

Alternative investments are opportunities that fall outside of traditional investment vehicles and investors will consider them to add diversity and balance to their existing traditional investments or as a safe haven at times of economic uncertainty.

Commodities are the most popular alternative investment. The reason being they are tangible and retain their value. For example, your share prices can plummet in a matter of minutes but if you invest in a vintage bottle of wine and put in the cellar, it will still be there in the morning.

Commodities can be anything from wine to coffee but typically it will have its intrinsic value as well as its market value. Gold is a popular choice and a good example. For example if you had 1 oz of gold (value of $35) in 1970, you could have purchased a tailor-made suit. The same amount of gold today will still buy you a tailor-made suit. However, $35 today probably wouldn’t cover the cost of the buttons.

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