What is an alternative asset?
It is a non-traditional financial asset that can provide any sort of economic value. Bonds, equity shares and cash are all considered traditional financial assets, whereas art, real estate, commodities and private equity are among examples which would be considered alternative assets.
Where have you heard about alternative assets?
Many investors deal in costly art or property, with the intention of holding on to these assets while their value rises over time. Investors will eventually sell the assets when the profit margin is large enough.
What you need to know about alternative assets.
There are both advantages and disadvantages when dealing with alternative assets. Non-traditional assets help to expand an investor’s portfolio, but they are harder to add to a portfolio, resulting in additional bank charges. There is also the issue of liquidity that comes with dealing with alternative assets. For example, fine wines and artworks usually see their value increase over time, so a longer investment horizon would be considered when handling them. Liquidating and the accurate assessment of assets can also be a lengthy process, putting off people from investment.
Find out more about alternative assets.
To better understand alternative assets, it’s useful to learn about liquidity.