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What are alternative investments?
An alternative investment is a class of investment that does not come under any government regulator like RBI, SEBI, IRDA and PFRDA. It refers to a privately pooled investment fund – a trust or a company.
Here are some alternative investment approaches that may influence your investment decisions –
#1 Focus on Absolute Returns
You invest in order to end up with more money than what you started with. This means you are looking for an absolute return: how much you actually earned is the main focus.
invest in assets that you believe will perform well; Do not invest in a product just because it is expected to outperform the market. Get your analysis in hand.
#2 Return is One Dimensional, Risk is Multi Dimensional
Calculating returns is easy when it comes to investing. Also keep in mind the risks associated with alternative investment properties. Prepare a list of relevant risks. You should have a clear idea about the risks involved in your investments, as this will help you in making a calculated decision.
Plus, if something unexpected happens, you’re more likely to make a better decision if you’ve thought about the risks before investing.
#3 Know the Source Return
Understand what will affect and drive your return on investment. While you hold investments, keep track of the value of your investments.
Revisit your perceptions of investment return drivers constantly, reconsider your investments if they do not match your parameters or expectations.
#4 Vague is good
Anything that is not traditional is optional. An alternative investment is populated by investment ideas that may not be immediately apparent. For example cryptocurrency.
Constant learning, searching, researching, studying and looking outside your comfort zone is the key to financial success.
#5 Diversification is important
Holding a mix of assets that are equally good but that behave differently will preserve your portfolio’s returns, while also reducing its risk.
Diversify means building a portfolio with very diverse return drivers and risk parameters, not just individual assets.
Most of us view investing in alternative investments as extremely risky. However, if you aspire to lead a successful and fulfilling life and retire with enough money to enjoy your retirement years, you must take calculated risks. This includes risk in your relationships, risk in your career and risk in your investments.
While taking smart, well-planned risks is important to reaching your goals in life, remember that taking bad risks and losing can set you back, sometimes significantly. However, it may help to remember that taking smart risks is as simple as making wise decisions.
A Framework for Making Good Decisions
I’ve learned a lot in my life from observing others and from my own personal experiences – both good and bad. So, when I consider taking a risk in any area of my life, these are the questions I ask myself:
1. What are the risks? be honest. Don’t let your emotions prevent you from carefully considering all the potential risks. This is where the landmines are present.
2. What are the chances of any one risk being correct? Be truthful Use real data whenever you can by doing research and talking to others.
3. What are the prizes? be realistic. Can you really quit your day job and dedicate ten hours a week to something and make $100,000 a year? (Probably not.)
4. What are the chances of those prizes? be sensible. Find out how many other people have done something similar and how they fared.
5. What other options do I have? be creative. Don’t limit yourself. Consider all the possibilities.
6. Do I need to make this decision today? Probably not. Take the time needed to do your research and explore your options.
After you’ve answered these six questions, remove emotion from your decisions and ask what your gut is telling you. Also, never forget about wild card risk; You don’t know what you don’t know!
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