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Alternative investment

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Alternative investment

A British 1 shilling embossed stamp, typical of the type included in an investment portfolio of stamps.

An alternative investment is an investment in asset classes other than stocks, bonds, and cash. The term is a relatively loose one and includes tangible assets such as precious metals,[1] art, wine, antiques, coins, or stamps[2] and some financial assets such as a Real Estate Fund, commodities, private equity, distressed securities, hedge funds, carbon credits,[3] venture capital, film production[4] and financial derivatives. Investments in real estate and forestry[5] are also often termed alternative despite the ancient use of such real assets to enhance and preserve wealth. Alternative investments are to be contrasted with traditional investments.

Contents

  • Research 1
  • Investors 2
  • Characteristics 3
  • Liquid alts 4
  • See also 5
  • References 6
  • Further reading 7
  • External links 8

Research

There is a wide variety of literature on alternative investments; however, this term has been used broadly and can also be used to refer to financial alternatives such as derivatives or other alternatives such as energy. It is difficult to find research on the investment characteristics of tangible alternatives such as art or wine due primarily to a lack of good quality data. The Goizueta Business School at Emory University has established the Emory Center for Alternative Investments to provide research and a forum for discussion regarding private equity, hedge fund, and venture capital investments.

Investors

The Merrill Lynch/Cap Gemini Ernst & Young World Wealth Report 2003, based on 2002 data, showed high net worth individuals, as defined in the report, to have 10% of their financial assets in alternative investments. For the purposes of the report, alternative investments included "structured products, luxury valuables and collectibles, hedge funds, managed futures, and precious metals".[6] By 2007, this had reduced to 9%.[7] No recommendations were made in either report about the amount of money investors should place in alternative investments.

A Good Delivery bar, the standard for trade in the major international gold markets.

Characteristics

Alternative investments are sometimes used as a tool to reduce overall investment risk through diversification.

Some of the characteristics of alternative investments may include:

  • Low correlation with traditional financial investments such as stocks and bonds
  • It may be difficult to determine the current market value of the asset
  • Alternative investments may be relatively illiquid (see "Liquid alts")
  • Costs of purchase and sale may be relatively high
  • There may be limited historical risk and return data
  • A high degree of investment analysis may be required before buying

Liquid alts

Liquid alternatives ("alts") are alternative investments that provide daily liquidity. Liquid alternative investments should produce returns uncorrelated to GDP growth, must have protection against systemic market risk and should be too small to create new systemic risks for the market.[8]

There has been expressed skepticism over the complexity of liquid alts and the lack of able portfolio managers.[9]

See also

References

  1. ^ Precious metals as an alternative investment
  2. ^ by John GreenwoodFirst class returns for alternative investments The Telegraph, 6 October 2008. Retrieved 29 October 2011. Archived here.
  3. ^ CER's as investment
  4. ^ by Shelly SchwartzInvesting In The Big Screen Can Be A Profitable Story CNBC, 18 October 2010. Retrieved 29 October 2011. Archived here.
  5. ^ ,Invest in a forest The Telegraph, 25 Aug 2007. Retrieved 14 September 2013. Archived here.
  6. ^ , p.12. Retrieved 28 March 2010.Merrill Lynch/Cap Gemini Ernst & Young World Wealth Report 2003
  7. ^ , p.14. Retrieved 28 March 2010.Cap Gemini Merrill Lynch World Wealth Report 2008
  8. ^ Defining liquid alternatives
  9. ^ Some question the value of liquid-alts mutual funds

This group has a lot to offer anyone interested in Alternative Investments www.dutchoracle.com

Further reading

  • H. Kent Baker and Greg Filbeck (2013). Alternative Investments: Instruments, Performance, Benchmarks and Strategies. John Wiley & Sons.  
  • David M. Weiss (2009). Financial Instruments: Equities, Debt, Derivatives and Alternative Investments. Portfolio.  
  • How To Invest In Stamps And Coins. Quick Easy Guides. 2008.  

External links

  • by Chris Veld, University of Stirling. (Incomplete first draft)Portfolio Diversification benefits of Investing in Stamps
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