Traditional vs Alternative Investments: What Are the Differences?
Long gone are the days where the only way you could invest was through the stock exchange. There are now far more ways to potentially grow your money; known as alternative investments. Some people argue that alternative investments are the only way to go nowadays. Whereas others believe traditional is best. We take a look at the differences between traditional and alternative investments, to see which is better.
Before we look at the key differences, let’s take a look at the standard definitions of these investing options.
Traditional - Essentially, this is where you invest your money into assets that are well-known. There are three types of traditional investments cash, stocks and bonds.
Alternative - If you are not investing in cash, stocks or bonds, you are making an alternative investment. This could include real estate, commodities and hedge funds. There are many more alternative investments, also.
One of the key differences between traditional and alternative investments is the liquidity. Assets put into traditional investments tend to be easily accessible at any time, by the investor. Usually, you would be able to cash in your bonds or stocks when you need to. Alternative investments tend to be illiquid, however. This means you are not able to liquidate an asset in order to get some quick cash. If you were to purchase a house, for example, that house would need to be sold before you could access the funds.
There are some distinct differences about the kind of support you’ll find for each investment option. Traditional investors tend to remain quite tight-lipped about their trading secrets. You can fork out for a financial advisor, but they could cost more than you’re willing to invest. Trying to navigate the stock market can seem almost impossible. When it comes to alternative investments, you’ll find there are far more people who will provide support. There are sites such as Alt Invest HQ, which provide open and honest information for new investors. This will certainly come in handy as you learn the ropes.
Return on Investment
This is quite possibly the most important thing any new investor wants to know. What is the difference between return on investment? Alternative investments tend to provide a greater return, even when the market is tough. During the 2008 financial crisis, alternative investment options held their own, predominately. Traditional investments didn’t do so well. Alternative investments tend to need higher minimum amounts, which is the only drawback when it comes to new investors. If you don’t have a lot of money to invest, then you could be waiting a while for big returns. Traditional investments require smaller minimums, but also have a lower return on investment.
As you can see, there are some big differences between the two. However, there is no real way to decide which is best. It all depends on how you want to invest and what option appeals to you more. Perhaps the sensible way forward is to diversify your trading portfolio; a little bit of both traditional and alternative.