Question:
Discuss about the several alternative investment options. Evaluate the critical analysis of the alternative investment.
It discussed about the several alternative investment options. The aim is to evaluate the critical analysis of the alternative investment. It successfully spelled out the features, risk attaching with each alternative investment and reason for investing them. Indeed, an investment is one of the three kinds of traditional assets such as stock, cash and bonds. An alternative investment is the wide range of non-mainstream investment classes. In the other words, an alternative investment term includes tangible assets such as art, wine, coins, stamps and financial assets such as private equity, real estate, hedge funds, commodities, carbon credits, film production and venture. Further, low correlation with stock & bonds, difficult to determine the current market value, relatively liquid, limited historical risk, purchase & sales cost may be high degree of investment analysis are the features of the alternative investment. This term used broadly and refer to financial alternatives such as derivatives. So, it is hard to search the investment features of tangible alternatives such as wine or art due to lack of good quality data. Furthermore, it is assets held by institutional investors, high net worth individuals because of their flexibility nature, relative lack of liquidity and limited regulations. It involves to manages futures, commodities, hedge funds and derivatives contracts. (Arrow & Kruz 2013).
Analysis: These are seven alternative investment options with their features, risk attaching to each selected alternative and reason for investing them that is described below:
Liquidity alternative investment: This investment strategy available in the ETFs, mutual funds and closed-end funds that provides liquidity in the daily basis. It is the significant part of the alternative investment options such as hedge funds and equity that available in the market. It is known as 40 Act funds due to created under the US Congress government. It is separated into two parts such as an alternative investment class and alternative asset class. This investment strategy is adopted by the five LAI Peer Group that got 1.5 percent gain while others group get losses from -0.4 percent to -2.0 percent in the market. It is a useful strategy in the current investment market as per their risk and reward compare ratio in the market. The common risk is that these strategies can bet against use investments outside those markets, traditional capital markets, tactically move within and across markets. Although, the investment concentrates on the hedge funds and liquid alternatives are subject to registered investment regulation covering leverage, diversification and liquidity. (Mendoza 2008). These are the common reason for investing in liquid investment that is described below:
Traditional alternative investment: Traditional investment advised to invest money in popular assets classes such as bonds, real estate, share and cash. Bonds are the investment class that provides a fixed return by government and company. So, an investor prefers to use it. Cash is a short-term investment in the certificate of the deposited and high yield bank accounts. Real estate is the common form of investment that evaluated by the number of participants because it involves purchase as a primary residence. In the other words, it manages long-term capital stocks, cash and bonds. The risk attached with traditional investment that it is difficult to make money when markets are falling. These are the other kinds of risk in traditional investment including an interest rate risk that affect the bonds and stock, market risk that related to fluctuation in the overall market, inflation risk that affecting all securities purchasing power risk, financial risk that uses of debt financing by organization, liquidity risk that linked with secondary market such as security trades and country risk such as political risk. (Mendoza 2008). These are the reason for investing in traditional investment that is described below:
Lower transaction costs: It is the significant reason for investing in traditional investment option because it has low transaction costs. It attracts new investor because it provides a low cost that is beneficial for those recently start an investment with limited budget. Due to lower transaction cost it reduce the risk of high investment benefit. It is the mostly prefer by small money investors in the market. (Arrow & Kruz 2013).
Avoid market volatility: It is the significant factor that affected the market volatility. Market volatility is the part of every business that affected the organization growth and development. Low volatility reduces the investor stress when they invest in first time in any investment class option in the market. (McGuire 2010).
Tax benefit: It is beneficial for the long-term investors that want some tax benefit because they have to pay long tax due to high return on their investment value. It is the significant part of any investment opportunity that affected the investment business in the market. (Mendoza 2008).
Diversification value: It provides varieties of investment in the market. It is the significant factor that affected the new investor in the market. A big investor desire to invest in several opportunities that helps to jugde that which is most appropriate and beneficial for them. (Arrow & Kruz 2013).
Gold alternative investment: It is famous investment class in the worldwide, especially in India where it is part of culture. So, women used it as gold ornaments. It is most safe investment class as compared to other class of investment. These are the following risk attached with gold that it is not commodity which you can eat. In 2008, gold lost more than 30 percent value from his peak rate. In 1980s, gold lost 65 percent value in two year. It has no income generating capabilities. These are the main reason for investing in gold that is described below:
Investment wine alternative investment: It is a gold bullion, fine art, tulip bulbs and rare coins that known as alternative investment. This investment includes two methods. One is purchasing and reselling bottles and second is purchasing shares in an investment wine fund that provide benchmark for the investors capital. It is the risk attached with investment wine such as not moving upwards from 2006-2008, no dividend payments and unregulated market. (Kiesel 2010). These are the main reason for investing in an investment wine that is described below:
Silver alternative investment: It is used as the precious metal class investment. It is known as forms of money and store of value. It lost its role in legal tender in all developed nations. The main risk involved with silver investment is that it is unable to liquidate your metals because you need to find buyers, it requires to pay high commission to silver sellers and it doesn’t provide an interest from the bank. (Stein & DeMuth 2011). Further, these are the reason behind for investing in silver investment that is described below:
Chartered alternative investment: Chartered investment is the class of investment that that created by the Chartered Alternative Investment Analyst (CAIA) for professional design perspective. The CAIA was established by the Alternative Investment Management Association (AIMA) in 2002. It is separated in the two levels such as focus on the advance topic and second focus on the fundamentals alternative investment. Chartered investment pays lower return an compared to other investment class that is the main risk involved with them. (Larry, Swedroe & Kizer 2010). These are the reason for investing in the Chartered alternative investment that is described below:
Philatelic alternative investment: Philatelic investment is stamp that aim to get profit from the market. A philatelic is one type of the tangible investment that desire to evaluating the value of the stamp. Tangible investment includes rare, coins, art, antiques that are called as the term of alternative investment. Not guaranteed return, high cost of sell, the expert stamps required, difficult to determine the present market value, little reliable historical information and spend time to sell the investment schemes are the involved risk in the Philatelic investment. (Stein & DeMuth 2011). Further, these are the reason to an investment in philatelic investment that is described below:
Conclusion
On the basis of above analysis, concluded that the features, risk and reason for investing them as well as high ability to adopt new approach in alternative investment helps it to maintain its competitive position in the investment market of the world. Due to varieties of the investment option, an investor has an opportunity to invest as per their budget. It would helpful to raise the money in alternative investment option. Gold and silver are the popular investment class in the worldwide. Nowadays, liquid investment is becoming famous in the present market because it reduce high risk in the investment option. Liquid, traditional, gold, investment wine, silver chartered and palladium are an important alternative investment that raises the investor interest to mention in their portfolio. Due to varieties of the alternative investment class, the investors have a huge opportunity to invest in a different segment as per their budget of money.
It provides several recommendations for the alternative investment that is described below:
References
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Amenc, N, Martellini, L, & Vaissié, M, 2003, Benefits and risks of alternative investment strategies, Journal of Asset Management, 4(2), pp.96-118.
Arrow, KJ, & Kruz, M, 2013, Public investment, the rate of return, and optimal fiscal policy (Vol. 1), Routledge, New Jersey.
Athanassiou, P, 2012, Research Handbook on Hedge Funds, Private Equity and Alternative Investments, Edward Elgar Publishing, New York.
Kiesel, R, 2010, Alternative Investments and Strategies, World Scientific, New York.
Landolt, T, 2014, Alternative Investments: Dollar Invested By Asset Class 2013, View 17 May, 2016,
Larry E, Swedroe, & Kizer, J, 2010, The Only Guide to Alternative Investments You’ll Ever Need: The Good, the Flawed, the Bad, and the Ugly, John Wiley and Sons, New Jersey.
Mallin, C, & Ow-Yong, K, 2010, The UK alternative investment market–ethical dimensions, Journal of business ethics, 95(2), pp.223-239.
Mark JP, Anson, FJ, Fabozzi, FJ, Jones, 2010, The Handbook of Traditional and Alternative Investment Vehicles: Investment Characteristics and Strategies, John Wiley & Sons, New Jersey.
McGuire, S, 2010, Hard Money: Taking Gold to a Higher Investment Level, John Wiley & Sons, New York.
Mendoza, JM, 2008, Securities regulation in low-tier listing venues: The rise of the Alternative Investment Market, Fordham J. Corp. & Fin. L., 13, p.257.
Reilly, F, & Brown, K, 2011, Investment analysis and portfolio management, Cengage Learning, New York.
Rousseau, S, 2007, London calling?: The experience of the Alternative Investment Market and the competitiveness of Canadian stock exchanges, Banking and Finance Law Review, 23(1).
Stein, B, & DeMuth, P, 2011, The Little Book of Alternative Investments: Reaping Rewards by Daring to be Different, John Wiley & Sons, New Jersey.
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