Ever since the financial crisis of 2008, a lot of financial firms and their clients have started to reevaluate the importance of asset allocation and diversifying portfolios. This resulted in portfolio managers changing their approach and adding alternative investments to their client’s portfolios.
The latest and most popular alternative investment at the moment are cryptocurrencies, and investors can easily get into it by buying shares in a cryptocurrency ETF or by using other proxy instruments.
Defining Alternative Investments
To anyone who is unfamiliar with the term, alternative investments are often defined as “non-correlated assets”, which means that they do not follow the trend in performance that the more traditional assets follow (think stocks and bonds). Non-correlated assets usually move in the opposite of traditional investments, which means that they have the potential to be an effective hedge against market lows.
Alternative investments can also be a handy way to even out the risks in a portfolio and provide a safety net of sorts in the event of stock meltdowns, for example. They are nice to spread around in small amounts in your portfolio.
When Do I Add Alternative Investments to My Portfolio?
Some financial advisors would tell you that it is absolutely necessary to add alternative investments to your investments portfolios, especially if it’s for retirement. This can be 5-10 percent of your portfolio. If you want something like cryptocurrencies as an alternative investment, then you’re going to have to be patient, since it is guaranteed to be a rocky road until the cryptocurrency market matures.
Your investment’s performance will also depend on how you decide to approach your investment into cryptocurrencies. You can have your pick and invest in any of the 1,400 (and still growing) available cryptocurrencies in existence, although the most popular choices are Bitcoin and Ethereum. Those two cryptocurrencies helped develop blockchain technology and require special equipment in order to successfully mine cryptocurrency.
Companies are now slowly pursuing investments in Blockchain technology, and soon it won’t be surprising to see that they have released their own ETFs. Hedge funds are also reportedly including cryptocurrencies in their portfolios. If even hedge funds are turning to Bitcoins and cryptocurrencies while being alternative investments themselves, then it won’t be long before the media starts to declare cryptocurrencies as an alternative investment as well.
Going Beyond Bitcoin
If you have a high-risk appetite and are an aggressive investor, then it could be a nice move for you to look past Bitcoin and branch out into other cryptocurrencies. In fact, cryptocurrency exchanges like Bitcoin Up allow their users to buy and sell a huge variety of cryptocurrencies.
So far, though, traditional brokers have yet to offer products that can help make investing in cryptocurrencies easier for individuals. For now, exchanges are still the way to go, but in the future, that might change.
But despite all the noise around the current and future activity in the cryptocurrency world, no one has still explicitly stated that cryptocurrencies are indeed an alternative investment. They are non-correlated to stocks and bonds but could even be considered as currencies.
And because blockchain technology is still relatively new, a lot of people still do not understand the complexities of it, leading them to perceive it to be lower in value than they actually are. This is why finance companies are working and running tests with the DTTC in order to gain data that they can use to improve their current processes.
It is believed that it won’t be long before investors and financial firms start considering cryptocurrencies and technologies born from blockchain technology as alternative investments and finally have a place in investment portfolios. It is also clear that as time goes by, there will be more and more opportunities to invest in them.
Once you have your financial goals sorted out, you can look into investing in cryptocurrencies if you want a long term investment to add to your portfolio.
As with any kind of investment that you are planning to delve into, there will be some who are making money, and there will be some who lose it. They carry high risks, so it is definitely not those who are faint of heart, but it is undeniable that it’s a growing and tangible investment opportunity.