Diversified investments help to limit the damage when one or more financial instruments start incurring a loss during the volatile market. A diversified portfolio also reduces the risk related to purchasing stocks across closely related industries. There are multiple ways to achieve diversified investments. Alternative assets that don’t fall under the category of traditional investments are a good way to get a diversified portfolio.
Alternative Investments to diversify your Investment Portfolio.
The basic purpose of a diversified portfolio is alleviating risks, especially during a volatile market. Other investors might opt for a diversified investment as a way to earn profit or shield against protection. Nevertheless, there are multiple alternative investments to look at.
- Capital Protection Funds: As the name suggests, capital protection funds or structured funds are designed by financial institutions in a way which provides investors with growth and protection of the capital investment. Here, the capital investment begins at Rs. 10 lakh. Capital protection funds are structured according to the overall view of the market, sectors and stocks.
- International Funds: A considerable portion of Indian investors opt for domestic stocks and country-specific equity funds. The income, savings, pension and the investments are within the country which means the risk is concentrated within the same economy. Today, even the local markets and economy are affected and influenced by global forces. Since the purpose of a diversified investment portfolio is to reduce risk, an investor should consider investing in international funds to avoid being solely dependent on Indian markets.
- Art: Art is one of the hard assets i.e. assets which are tangible. Such assets have an intrinsic value and can be bought directly or through investment funds which specialize in different hard assets. Art as an investment is preferable for those with a net worth of Rs. 1 crore or more since it requires a minimum entry-level investment of Rs. 3-5 lakh. Investing in art can safeguard an investor from the market volatility. The downside of investing in art is that the art market in India remains unregulated, hence investors shouldn’t invest more than 3-5% of the net asset worth.
- Gold: The yellow metal is favored unanimously across the country. Gold is the almost perfect investment option – a tangible liquid asset which has a long-term storage value and also acts as an inflation hedge. In fact, when the value of equity market goes down, the value of gold appreciates. Investing in gold also protects investors from global uncertainties. In recent times, gold ETFs have also become a favored investment to include in a diversified portfolio.
- Real Estate: Even though the real estate market has been rough lately, it remains a viable option to include in a diversified investment portfolio. Investors have a choice between owning physical residential or commercial properties or they can invest in real estate funds. Buying a property and renting it can also become a source of income for those looking to kill two birds with one stone.
- Peer-to-Peer Lending: An up and coming, relatively new phenomenon, peer-to-peer lending is another instrument to include in a diversified portfolio. The workings are pretty basic. The investor acts like a financial institution and lends money to peers in need. An investor can either pool the money with other investors, or lend alone.
Diversified investment or diversified portfolio which include alternative assets provide investors with a chance to mitigate risks during a volatile market. Investors can include a variety of assets including traditional stocks and bonds, hard assets or long-term investments. Investors should also remember that alternative investments can often be illiquid and can’t be cashed in quickly or easily. It goes without saying that anyone should complete their due diligence before adding anything to their diversified portfolio.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.