What are alternative investments?
An alternative investment is a class of investment that is not covered by any government regulation such as RBI, SEBI, IRDA, and PFRDA. 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 returns
You invest until you have more money than you started with. This means that you are looking for an absolute return: how much you actually made, is the main focus.
invest in assets that you think will perform well; Don’t invest in a product just because it has the potential to outperform the market. Have your analysis on hand.
#2 Returns are one-dimensional, risks are multidimensional
When it comes to investments, returns are easy to calculate. Keep your focus on the risks involved in alternative investment assets as well. Make a list of relevant risks. You must have a clear idea of the risks involved in your investment, as this will help you make a calculated decision.
Also, if something unexpected ever happens, you are more likely to make better decisions if you think about the risks before investing.
#3 Know the source back
Understand what will influence and drive the return on your investment. While holding the investment, keep an eye on the value of your investment.
Constantly review your assumptions about the drivers of return on investment, in the event that they do not match your standards or expectations, rethink your investment.
#4 Not obvious is good
Anything funky is an alternative. Alternative investing is full of investment ideas that may not be immediately apparent. For example cryptocurrency.
Continuous learning, exploring, researching, studying and looking outside your comfort zone is the key to financial success.
#5 Diversity is a must
Holding a mix of assets that are equally good, but that behave differently, will leave your portfolio’s return the same, and reduce its risk as well.
Diversification means creating a portfolio with highly diversified return drivers 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 smart calculated risks is vital to reaching your goals in life, remember that taking a bad risk and losing can set you back, sometimes dramatically. However, it can be helpful to remember that taking a smart risk is as simple as making wise decisions.
A framework for good decision making
I’ve learned a lot in my life from observing others and through my own experiences – both good and bad. So, when I think about taking risks in any area of my life, here are the questions I ask myself:
1. What are the risks? be honest. Don’t let your emotions stop you from carefully considering all the potential risks. This is where the land mines are.
2. What are the odds of a risk materializing? be honest. Use real data whenever you can by doing your 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? (Mostly not.)
4. What are the odds of getting these rewards? be wise. Find out how many other people have done something similar and how they achieved success.
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? Mostly not. Take the time you need to do your research and explore your options.
After you’ve finished answering these six questions, remove the emotion from your decision and ask what your intuition is telling you. Also, never forget the Wild Card risks; You don’t know what you don’t know!