The advantages of alternative investments lie primarily in the possibility of achieving a profit ratio higher than that normally found in traditional investments. More often than not, an alternative investment carries a high degree of risk, and is frequently encountered in the fields of new or emerging technologies. Inherent to alternative investments is the possibility of both minor and major financial loss. On the other hand, the lure of potentially quick and high returns leads many an investor to take a roll of the dice and engage in a speculative plunge
Traditional investments, those that have historically been considered a relatively safe harbor for investors, would generally be viewed in terms of financial products such as stocks, bonds, real estate, treasury bills, money market funds, and cash. Alternative investments fit more within the realm of hard goods, new companies, or innovative technologies. Art, wine, precious metals, jewelry, or investments in green technologies would be identified as alternative investments. A perfect example of these types of investments occurred during the 1990s boom in Internet technology. While some investors made fortunes backing Internet-start up ventures, many more lost vast amounts of money when the “dot com” bubble collapsed.
For some individuals, however, the advantages of alternative investments do not necessarily consist entirely of profit or loss. For the art lover, coin collector, or wine connoisseur, the acquisition of these assets can bring personal joy and satisfaction. An alternative investor may also provide funding for a theater production or concert. While the likelihood of a positive return on investment may be questionable, his primary goal could well be a general support of artistic endeavors. This same thought process could be applied to the person who invests in alternative green technologies, doing so because he finds environmental awareness worthy of merit.
Far more frequently though, the impetus behind an investor’s desire to delve into the realm of the alternative revolves around the hope of large economic gains in a short span of time. Individuals who took a risk with early investment in companies such as Microsoft® or Google® were graced with returns running the gamut from large to astronomical. The flip side of the coin is that for every Microsoft® millionaire there are countless people who lost money by pinning their financial dreams on Beta-Max video recorders and tanning salon franchises.
An alternative investment can be advantageous in that it may combine a personal hobby or passion with a business decision. At times it can be very lucrative, and at others it can be monetarily disastrous. Alternative investors should always perform research and due diligence before signing the check. Optimism and hope should be balanced with wariness and caution.