5 Alternative Investment Approaches
WHAT ARE ALTERNATIVE INVESTMENTS?
An alternative investment is a class of investment that is not covered by any government regulations such as RBI, SEBI, IRDA and PFRDA. Refers to a private equity 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 only to end up with more money than you started with. It means that you are looking for absolute return: how much you actually earned, is the main focus.
Invest in assets that you think will perform well; Don’t invest in a product just because it is likely to outperform the market. Have your analysis handy.
#2 RETURNS ARE UNIDIMENSIONAL, THE RISK IS MULTIDIMENSIONAL
When it comes to investments, returns are easy to calculate. Keep your focus on the risk involved with the alternative investment asset as well. Prepare a list of relevant risks. You should have a clear idea of the risks involved in your investment, as it will help you make a calculated decision.
Also, if something unexpected happens, you’ll be more likely to make better decisions if you’ve thought about the risks before investing.
#3 KNOW THE SOURCE BACK
Understand what will influence and drive your investment returns. While holding the investment, monitor the value of your investment.
Constantly review your assumptions about ROI drivers, in case they don’t match your parameters or expectations, reconsider your investment.
#4 UNCLEAR IS GOOD
Anything that is not traditional is alternative. An alternative investment is populated with investment ideas that may not be immediately obvious. For example cryptocurrency.
Continuously learning, exploring, researching, studying, and seeking outside of your comfort zone is the key to financial success.
#5 DIVERSIFICATION IS ESSENTIAL
Having a mix of assets that are equally good, but perform differently, will leave the performance of your portfolio intact and reduce your risk as well.
Diversifying means building a portfolio with widely varied return factors and risk parameters, not just with different assets.
Most of us see investing in high risk alternative investments. However, if you want to live a fulfilling and successful 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 intelligently calculated risks is vital 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 good decision making
I have learned a lot in my life by observing others and through my personal experiences, both good and bad. Therefore, when I consider taking risks 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 possible risks. This is where the landmines exist.
2. What are the chances that one of the risks will come true? Be sincere. Use real data whenever you can by researching and talking to others.
3. What are the rewards? Be realistic. Can you really quit your day job and put in ten hours a week on something and make $100,000 a year? (Probably not.)
4. What are the odds of those rewards? Be sensitive. Find out how many others have done something similar and how they’ve 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 you need to research and explore your options.
After you finish answering these six questions, take the emotions out of your decision and ask yourself what your gut is telling you. Also, never forget about the wild card risk; you don’t know what you don’t know!