Alternative assets are an increasingly accessible and interesting portfolio addition to an increasing number of investors. Find out more about what they are, how they work and where you can find some of the best providers. You can jump directly to our comparison table for alternative asset platforms here.
What is an alternative asset?
An alternative asset refers to any investment asset that falls outside the traditional categories of stocks, bonds, and cash. These assets can be broad and are considered alternative because they do not fit neatly into conventional investment classes. Instead, they represent a wide range of investment opportunities that can provide strong returns and portfolio diversification potential, as they can often have a lower correlation with traditional markets.
Where can I invest in alternative assets?
Investors can increasingly access and invest in a range of alternative assets, usually by way of investment platforms and apps. We’ve created this Alternative Asset comparison table so you can easily find and compare alternative investment account providers. Remember as alternatives are such a broad investment category, be sure to know what you’re investing in, the risks, and any other considerations you’ll need to make before investing real money.
Why do people invest in alternative assets?
Alternative assets are popular among investors for several reasons:
Alternative assets provide diversification beyond traditional stocks and bonds, helping investors spread risk and potentially enhance overall portfolio stability.
Certain alternative assets, like real estate and commodities, can act as a hedge against inflation, preserving purchasing power over time.
Low correlation with traditional markets:
Many alternative assets have a low or negative correlation with traditional financial markets. This means their performance may not be closely tied to the performance of stocks and bonds, providing better risk management.
Investors can tailor their portfolios to suit specific objectives, interests, and risk appetites by incorporating alternative assets that align with their personal investment goals.
Some alternative investments may have the potential for higher returns although they often come with higher risk.
Who can invest in alternative assets?
Historically, alternative assets have been an investment class largely available to high net worths, given their usual high prices. However, investing in alternative assets is an increasingly attractive investment option for retail investors who are looking to diversify their portfolios. As the market becomes increasingly democratised and barriers to investor entry continue to be removed, alternative, alternative assets have become increasingly accessible, driven by fractionalisation.
What is fractionalisation?
Fractionalisation of an alternative asset refers to the process of dividing the ownership of that asset into smaller, tradable units or shares of the asset. Instead of an investor having to buy the entire asset, they can purchase a fraction of it. This concept is particularly relevant for alternative assets that may have high price entry barriers, such as real estate, fine art, or high-value commodities. Fractionalisation enables broader accessibility to a wider range of investors who may not have the financial capacity to buy the whole asset.
What alternative assets can you invest in?
There’s an ever-growing variety of alternative assets available to investors as the combination of market demand and technological advancement enables investor access to increase. Here are a few of the most popular.
Physical goods like gold, silver, other precious metals, or agricultural products, can act as a hedge against inflation and provide diversification.
Digital or virtual currencies, such as Bitcoin and Ethereum, operating on decentralised blockchain technology.
For centuries art has been collected for its cultural, emotional, intellectual, and even political value. Today investors can own fractions of the works of well-known and upcoming artists to their investment portfolios.
Residential and commercial property, and land itself, can also offer an option for investors. Access to this asset class can vary greatly, with platforms requiring a starting investment from £1 to in the £1000s.
Jewellery and luxury clothing
This asset class includes watches, diamonds, handbags, and more. The works of notable, designer brands are a type of alternative asset which are often in high demand amongst certain investors.
Fine wine and rare whisky casks are some of the alternative, tangible assets that many investors are turning to in an attempt to hedge inflation risk and produce returns.
Luxury and classic cars in short supply often drive increased demand for these alternative assets in the market.
From Lego to Pokemon cards, to rare coins and stamps. Collectibles are an emerging opportunity for some investors.
Online platforms that allow individuals to lend money directly to others, generating interest income.
What are some of the risks of alternative assets?
Like with investing in any asset, investing in alternatives presents investors with several potential risks they should carefully consider before investing any real money.
As with all financial investments, investing in alternative assets involves real risk. Prices of any alternative asset can go down as well as up and you could end up with less than you started with.
If supply exceeds demand
Generally speaking, high-value alternative assets are usually in limited supply. Take a luxury watch where there are only hundreds ever made. Much of the value comes from this scarcity. If the watch supplier decides to increase supply to tens of thousands, then the asset would fall in value.
Not all are equal
When an investor buys a share in Tesla, they can guarantee its price will be identical to another Tesla share. When it comes to alternative assets, this may not always be the case. Authenticity and quality are just some of the factors that can drive this variance, particularly in the context of things like wine, watches, art, and collectibles.
This essentially means, how readily and easily an asset can be bought and sold. Not all alternative assets share the same level of liquidity, and generally speaking, they are much less liquid than financial assets, such as stocks. This means it can be hard to sell holdings quickly. This isn’t exclusive to alternative assets however, all asset classes and types have different liquidity and it is an important factor to consider before you invest
Fees and commissions
Given the expertise to source, curate, and offer access to alternative assets, costs can vary greatly between providers and the platforms you use to access them. Many fees are baked into the purchase price of a given asset, so make sure to choose a provider who is upfront about any costs, fees, or commissions before investing.
How much do I need to get started investing in alternatives?
Almost all investment platforms have a minimum amount you can invest. This is the lowest amount of money an investor can add to their account, and use to buy things like shares. In the UK, this generally ranges anywhere between £1-£50, but can even be as high as £500 or more with certain providers of certain accounts.
How do I get started investing in alternative assets?
You’ll need to research and choose a reliable, secure platform that offers the alternative you’re looking to invest in. You may want to consider things such as minimum deposit amounts, fees, customer service, and any other things important to you in a prospective platform. You’ll also want to consider the risks of investing before getting started.
Before you invest in alternatives
Before making any investments, you must understand the risks involved and only invest money you can afford to lose. Do your research or consult with a qualified financial advisor if you need expert support.
What's the bottom line?
Alternative assets can be an effective way to build diversity into an investment portfolio. They are an increasingly popular choice for investors looking to invest in often tangible assets with low correlation to the financial markets. It’s important however to consider the risks, characteristics, and liquidity of any alternative asset before investing real money. Reputable alternative asset investment platforms can help mitigate some, but not all risk, by collaborating with industry experts, sourcing and validating assets, and providing detailed descriptions, professional analyses, and realistic assessments of value and yield for each asset. Like with all investing, it is important to do your own research and know the risks before investing in alternative assets.
Interested in learning more about alternative assets and the world of investing but don’t know exactly where to start? We would always recommend practising without any real money before you start. Try the Pluto demo (no real money) environment on the free Pluto app.