Alternative Investments, Are They Worth It?

A normal investment is usually considered to be something like cash or currencies, stocks, and bonds. There are general investments that most people think of. However, there is such a thing as an alternative investment.

If we are talking about alternative investments, we are talking about things such as derivatives, commodities, managed futures, real estate, private equity, and hedge funds too. Alternative investments can be quite profitable in many circumstances, but are they worth the risk?

The Most Important Types Of Alternative Investments To Be Familiar With

Generally speaking, there are seven main types of alternative investments that exist. So what are they?

  1. Private Equity
  2. Investments In Startups
  3. Venture Capital
  4. Real Assets
  5. Hedge Funds
  6. Fund of Funds
  7. Private Placement Debt

Now, each of these categories of alternative investments has their own features, benefits, and drawbacks. However, today we're discussing one specific type of alternative investment – real assets.

What Are Real Assets?

One of the most common types of alternative investments is the real asset. Real assets, for the most part, consist of tangible goods – commodities that you can actually hold in your hands. But there are other things included in the category as well. What are some of the most common real asset alternative investments that people are interested in?

  • Real estate
  • Oil
  • Metals
  • Agricultural land
  • Wine
  • Art
  • Jewelry
  • Diamonds
  • Rare coins

One of the most interesting real assets that are categorized as an alternative investment is the diamond. Interestingly enough, diamonds have only achieved such a high status and value since the 1930s, when a big marketing campaign drastically increased their popularity as a symbol of wealth. So, when it comes to alternative investments, specifically diamonds, are they worth it?

Are Diamonds Worth Investing In?

Ok, to be clear, what is meant here is an investment into diamonds directly, not into the stocks of a diamond-related company. Diamonds are generally a decent investment, but there are some experts who say otherwise, and they can come with quite a bit of trouble. It takes some expert knowledge and quite a bit of cash to invest directly into diamonds. The reason it takes knowledge and skill to invest in diamonds is due to a few reasons.

  1. Diamonds have a problem of liquidity. While they are worth a whole lot, they can be really hard to sell to get your money back, especially in large numbers.
  2. There are quite a few unscrupulous folks out there who solicit investments from people but don't actually have real diamonds to invest in. This is quite a common scam. When investing in alternative investments such as diamonds, you must always know how to spot a fake.
  3. You have to know the difference between the retail value and the wholesale value of diamonds. If you decide to invest your money at the retail value level, you have already lost any chance of turning a profit.
  4. There are some tax liability issues when it comes to investing in diamonds, so having a good accountant and a thorough knowledge of tax laws is essential.

Another big problem with diamonds is that they cost a whole lot to purchase. This is why diamonds make for a good investment if you have plenty of spare money reserved for investing. However, they do make great diversification assets. The great part about diamonds is that their supply is limited and controlled, so the value of them never really goes down, only up. Also, the value of diamonds tends to keep pace with inflation, which is yet another bonus.

Diamonds As An Alternative Investment – Conclusion

The bottom line is that diamonds do usually make for a good alternative investment. Their value increases, they are worth a heck of a lot, they are good in terms of asset diversification, and they keep pace with inflation. However, you do need to know what you are doing here, so just be careful, not to mention that you already need to have significant financial assets to even consider investing in diamonds.

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