WHAT ARE ALTERNATIVE INVESTMENTS?
Alternative investments are a class of investments that are not governed by any government regulations such as RBI, SEBI, IRDA and PFRDA. It refers to a private pooled investment fund – trust or company.
Here are some alternative investment approaches that may influence your investment decisions –
#1 FOCUS ON ABSOLUTE INCOME
You invest to get more money than what you started with. This means that you are looking for an absolute return: the main focus is how much you actually earned.
Invest in assets that you believe will bring success; don’t invest in a product just because it might outperform the market. Have your analysis handy.
#2 INCOME IS ONE-DIMENSIONAL, RISK IS MULTIDIMENSIONAL
When it comes to investing, returns are easy to calculate. Also focus on the risk associated with the alternative investment asset. Prepare a list of relevant risks. You should have a clear idea of the risks involved in your investments as this will help you make an informed decision.
Also, if the unexpected happens, you’re more likely to make better decisions if you think about the risks before you invest.
#3 KNOW THE SOURCE RETURN
Understand what will influence and drive your return on investment. While you hold the investment, monitor the value of your investment.
Constantly review your assumptions about the factors of return on investment, if they do not meet your parameters or expectations, rethink your investment.
#4 UNCLEAR IS GOOD
Anything that is not traditional is an alternative. Alternative investments are filled with investment ideas that may not be immediately obvious. For example, cryptocurrency.
Constantly learning, studying, researching, exploring and looking outside of your comfort zone is the key to financial success.
#5 DIVERSIFICATION IS A MUST
Investing in assets that are equally good but behave differently will keep your portfolio returns intact and reduce risk.
Diversification means creating a portfolio with a wide variety of return factors and risk parameters, not just different assets.
Most of us consider investing in alternative investments to be very risky. However, if you want to live a successful and fulfilling life and retire with enough money to enjoy your retirement years, you must take calculated risks. This includes risks in your relationships, risks in your career, and risks in your investments.
While taking intelligent risk is vital to achieving your goals in life, remember that risk and loss can set you back, sometimes significantly. However, it may help to remember that taking smart risks is just as easy as making wise decisions.
The basis for correct decision-making
I have learned a lot in my life by watching others and through personal experiences – both good and bad. So when I think about taking a risk in any area of life, I ask myself the following questions:
1. What are the risks? Be sincere. Don’t let your emotions stop you from carefully considering all possible risks. There are mines here.
2. What are the chances of one of the risks coming true? Be truthful. Use real data whenever you can by doing research and talking to others.
3. What are the rewards? 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 odds for these rewards? Be prudent. Find out how many others have done something similar and how they did it.
5. What other options do I have? Be creative. Don’t limit yourself. Consider all possibilities.
6. Do I need to make this decision today? Probably not. Take the time to do your research and explore your options.
Once you’re done answering these six questions, take the emotion out of your decision and ask what your intuition is telling you. Also never forget the wild card risk; you don’t know what you don’t know!