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In fact, one of the most common alternative investments that people invest in all the time is real estate. Some less common ones are collectible, venture capital, and hedge funds. That said, there are many other ways that people choose to invest their money.
Types of Alternative Investments
Alternative investing is really just investing your money in other avenues, like private markets, instead of traditional markets. This includes a variety of options like:
- Private Equity
- Private Debt and Credit
- Real Estate
- Hedge Funds
- Commodities
- Real Assets
- Liquid Alternatives
- Venture Capital
- Cryptocurrency
These alternative investment strategies can be a bit riskier than traditional ones, but they can also be much more lucrative. Each one of these alternative assets has its own process, so how you will invest in these alternative investment solutions will depend on the alternative investment that you choose.
How to Invest in Alternative Investments
How you invest in alternative investments depends on the type that you want to invest in. They can’t be bought on the typical stock market, but there are simple avenues you can use to embark on each investment.
Private Equity
When it comes to private equity investments, you can invest in companies looking for private investments. There are actually many companies that offer private equities, including online brokerages and financial advisors. From there, you can invest however much you choose and how you choose to invest them. Many companies also offer private equity mutual fund investments, which are outside of traditional asset classes as well as pooled funds.
Private Debt and Credit
Private debt and credit investing is a great way for an investor to diversify their portfolio, especially if interest rates are high. There are many sites tailored to private investors, or companies like Wealthsimple offer funds that private investors can pool their money into.
Real Estate
To invest in real estate, you mainly need to provide a down payment and have good credit. Once you have that, then the idea behind it is to rent out the property to provide yourself with a passive income. Once the property value has increased, you can then sell the property or use the equity in the home to purchase another property. It just evolves from there.
Hedge Funds
In Canada, you can choose to invest in hedge funds through fund managers or start your own. Existing hedge funds are monitored by both provincial and federal laws and are only offered to accredited investors. You can speak to your financial advisor to get a better sense of which hedge fund will work best for you.
Commodities
When it comes to commodities, there are a few different ways that you can invest by using alternative strategies. You can do this by purchasing the physical commodity, buying stocks for those who produce the commodity, purchasing future contracts or investing in mutual funds and ETFs that invest in the commodity. A good example of this is gold and other precious metals. That said, these aren’t going to be found on fixed-income markets.
Real Assets
Real assets are when you purchase the actual investment instead of the stocks of the investment. These are considered to be more lucrative because these investments you’re dealing with a tangible object, and these always tend to hold more value. However, this often involves asset allocation instead of private market alternatives.
Venture Capital
If you’re looking to invest in venture capital, the easiest way to do so is through a venture capital firm. These firms invest in new businesses using investors instead of banks. This makes it a great growth opportunity for both the investor and the business owner. The return you get on your investment is based on the terms of the deal.
Cryptocurrency
While Cryptocurrency isn’t considered to be legal tender, it is a form of payment that uses encryption algorithms. It’s designed to work through a computer network, and it isn’t reliant on an authority or government like the current legal tender is.
If you wish to obtain or invest in Cryptocurrency, you can do so by mining it yourself or purchasing it. There are plenty of crypto investing sites, as well as Wealthsimple, that allow you to invest in crypto. Since there are many types of Crypto, you do want to choose a site that has the one you’re looking for. It will provide periodic pricing changes, which will impact the account aspects of your portfolio.
Pros and Cons of Alternative Investments
Just like with any form of investment, alternative investments have positives and negatives that correspond with them. When choosing how you wish to invest your money, it's important to consider these pros and cons and determine how they’ll influence your investing decisions.
Pros
One of the many reasons that investors choose to invest in alternative options is that it’s a great way to diversify their portfolio. Since these speculative investment practices don’t really correlate with traditional assets, it levels out your portfolio and can reduce your overall risk. Since the goal of investing is to earn, alternative investments are becoming more popular among Canadian investors.
Since alternative investments are different from traditional ones, they're also known to have higher returns. They also give you access to niche markets and other cool opportunities that other investors aren’t involved in. Assets that increase over time also give you an advantage in combating inflation, leaving you with less risk of losing your funds.
Cons
Unfortunately, along with the positive, you’re also going to incur some negatives with alternative investments. The first is that these investments have a much higher risk. This really isn’t surprising, though, because higher risk is equal to a higher reward. In order to have a better shot at this risk paying off, these investments also require a higher level of research. This is especially true in investments that don’t have a lot of transparency. In these cases, it’s up to you to do your due diligence.
Another thing to consider with alternative investments is that it’s often more difficult to turn them liquid. This means that they won’t sell off easily, and you won’t have access to your funds right away. This often goes hand in hand with higher fees, like management fees, which can reduce your returns.
High-Yield Alternative Investments
Most alternative investments are actually considered to be high-yield investments. This is because they hold a much higher risk level than traditional investments. That said, many of these are also really simple to invest in.
Real Estate is one of the most common high-yield investments. However, many who invest in real estate aren’t doing so to make money. They purchase a place to live, then sell it later on down the road in order to purchase a new home. Some choose to use this investment in order to build their portfolio and earn passive income. However, the real estate market is a huge factor in when and where you should do this.
Another high-yield investment that many overlook is precious metals. The two most common precious metals are gold and silver. You can choose to invest in things by using stocks, ETFs or invest in the physical product itself. As one of the first options out there for investing, they tend to hold their value very well and are great for those just looking to jump into alternative investing. Depending on how you invest, you will probably have to pay asset management fees or other fees involved with your investment portfolios.
Best Alternative Investment Platforms
You might be surprised to learn that most investing platforms in Canada allow for some form of alternative investing. However, since no two platforms are alike, you may not find all the investments that you’re looking for just in one place. This doesn’t just happen with alternative investments, though. It also happens with traditional stocks.
Wealthsimple
Since other speculative investment practices, known as alternative investments, are considered to be anything other than stocks, bonds and cash, there are quite a few options with Wealthsimple. The one that they’re most commonly known for is cryptocurrency. This is because Wealthsimple is the first regulated platform for Cryptocurrency out there.
You can start trading Crypto instantly in small amounts, or for as much as $250,000. They even offer a ton of helpful research material to help you get started. In fact, they’re considered to be the best Cryptocurrency platform out there for beginners.
Questrade
While Questrade also offers a variety of investment options, something interesting that they currently offer is Alternative ETFs. These provide the benefits of alternative investments along with the simplicity of ETFs. These can be invested into any type of account that you like and be redeemed and traded whenever you like.
Interactive Brokers
Interactive Brokers is considered to be one of the best online brokers out there. They offer a variety of different investment options, both traditional and alternative, and they provide everything you need to create a diversified and flourishing portfolio. That said, you do have to take advantage of everything that they offer in order to do this.
Just like any other investments, you get out what you put in. Interactive Brokers provides you with the tools you need, it’s just important that you use them. Plus, you are welcome to use more than brokerage which can add another layer to your portfolio diversification.
Alternative Mutual Funds in Canada
While alternative mutual funds sound scary, they’re actually more common than you think. Some examples include those for start-up companies, gold, silver, and even real estate. Many people already choose to invest in these types of mutual funds without realizing that they’re considered to be alternative.
While many of these mutual funds are considered to be lucrative, gold is a popular one to invest in. This is because gold tends to always hold some value. It can be difficult to invest in the physical gold itself, so it’s simpler to invest in gold mutual funds. These mutual funds follow different gold companies and their profit margins. The more the company makes, the more its fund price increases. This can increase your investment quite quickly. Plus, these mutual funds tend to be less risky than other alternative mutual funds.
That said, with mutual funds, Prospectus-offered mutual funds will give you all of the information you need regarding them. For most places in Canada, this is required regardless of whether the mutual fund is considered to be an alternative. This is because they are respective offering documents and are used to determine suitability based on your personal circumstances.
Real Estate Funds as Alternative Investments
Real Estate Investment Trusts (REITs), also known as real estate funds, are structured investments that are actually very similar to mutual funds. They only differ because they don’t physically hold any stocks. They do, however, allow investors to invest in real estate without purchasing the physical asset.
When it comes to investing in this particular alternative investment, you need to keep in mind that there are 3 different types: Publicly Traded, Public Non-Traded, and Private Non-Traded. That said, the most common type is Publicly Traded.
Publicly Traded REITs are commonly invested in because they’re traded on the public markets, in Canada this is the Toronto Stock Exchange (TSX). The other two aren’t sold on exchanges, which can make purchasing them more difficult. Private Non-Traded are only available to high-net-worth investors, and Public Non-Traded tend to be purchased by real estate crowdfunding platforms.
How to Get a 10% Return on Investments in Canada
While it’s extremely possible to get a 10% return or more out of your investment, it likely isn’t going to happen overnight. High investment returns develop over time and vary depending on the type of investment you have. Here are some of the most common investments to develop this type of return.
- Growth Stocks
- Real Estate
- Junk Bonds
- Index Funds and ETFs
- Options Trading
- Private Credit
- Venture Capital
- Business Ownership
That said, even if you choose to invest in an investment that is shown to have a high ROI, there’s really no guarantee of your return. This is why investors don’t put all of their eggs in one basket, as they say. Having a variety of investment options can decrease your risk and increase the profitability of your portfolio.
Since there’s no foolproof way to guarantee a 10% ROI, the best option is to do your research before you invest any of your funds. You should also look for a second opinion. A financial advisor or an investment professional can help you gauge the risk and adjust your portfolio accordingly.
Why Choose Alternative Investments
Due to market volatility in the capital markets, investors, including institutional investors and retail investors, look for investment strategies that have reliable income streams. Alternative funds like real estate holdings provide a diversified portfolio, along with traditional assets, with the same regulatory requirements.
When looking into alternative investments, though, investment knowledge is key. Whether you look for investment advice for portfolio managers using the economic outlook information contained in their database, or do the research yourself on past performance and upcoming projections, it’s important. You should also have downside protection as part of your investment objectives to protect your investments as well as your real assets.
Even though alternative investments aren’t usually fixed-income, and they have higher investment minimums than traditional markets, rising interest rates have financial advisors and experienced investors looking into other investments instead of just traditional stocks. These investment options allow you to generate returns that are higher while offering a broad range of investments. Adding alternatives to a traditional portfolio can reduce your significant risk as well as provide innovative solutions to stabilize your income instead of just to sell securities.
Final Thoughts
In Canada, there are plenty of different ways you can invest your money. You can use traditional methods like High-Interest Savings Accounts, Guaranteed Income Certificates, Mutual Funds and even Stocks. However, these aren’t the only types of investments out there. There are also alternative investments.
Alternative investments are different ways that investors can save their money while maximizing their returns. These investments, though, also come at a much greater risk. They could involve holding assets or investing in investments that reflect an asset. No matter which type you choose, though, you should be prepared to do your own research. With values fluctuating all the time, you could end up losing a lot of money.
