What are alternative investments?
Alternative investments are a class of investments which are not covered by any government regulation like RBI, SEBI, IRDA and PFRDA. Refers to a private pooled investment fund – a trust or company.
Here are some alternative investment approaches that may influence your investment decisions –
#1 Focus on absolute returns
You invest until you have more money than you started with. This means you're looking for absolute returns: the main focus is on how much you actually earned.
Invest in assets that you think will perform well; Don't invest in a product just because it has the potential to outperform the market. Have your analysis at hand.
#2 Returns are one-dimensional, risks are multi-dimensional
When it comes to investing, it is easy to calculate returns. Also keep your focus on the risks involved in alternative investment assets. Make a list of relevant risks. You should have a clear idea of the risks involved in your investments, as this will help you take calculated decisions.
Plus, if something unexpected ever happens, you're more likely to make a better decision if you think about the risks before investing.
#3 Trace back to the source
Understand what will happen and what impact it will have on your investment returns. Keep an eye on the value of your investments while holding them.
Constantly review your assumptions about the drivers of return on investment and, if they do not match your standards or expectations, reconsider your investment.
#4 It's good to not be obvious
Anything funky is an option. Alternative investing is full of investment ideas that may not be immediately obvious. For example cryptocurrency.
Constant learning, exploring, researching, studying and looking outside your comfort zone are the keys to financial success.
#5 Diversity is important
Having a mix of equally good, but differently behaving assets will keep your portfolio returns consistent and also reduce risk.
Diversification means creating a portfolio with highly diverse return drivers and risk parameters, not just with different assets.
Most of us consider investing in alternative investments to be very risky. However, if you want to live a successful and fulfilling life and retire with enough money to enjoy your retirement years, you must take calculated risks. This includes risk in your relationships, risk in your career, and risk in your investments.
While it is important to take smart calculated risks to reach your goals in life, remember that taking bad risks and losing can sometimes set you back dramatically. However, it may be helpful to remember that taking smart risks is as simple as making wise decisions.
A Framework for Making Good Decisions
I've learned a lot in my life from observing others and from my own experiences – both good and bad. So, when I think about taking risks in any area of my life, these are the questions I ask myself:
1. What are the risks? be honest. Don't let your emotions stop you from carefully considering all potential risks. There are landmines here.
2. What is the probability of a risk materializing? be honest. Use real data whenever possible by doing your own research and talking to others.
3. What are the rewards? be realistic. Can you really quit your day job and work ten hours a week and make $100,000 a year? (Mostly not.)
4. What are the chances of getting this award? be wise. Find out how many other people have done something similar and how they achieved success.
5. What other options do I have? be creative. Don't limit yourself. Consider all possibilities.
6. Do I have to make this decision today? Mostly not. Take the time you need to do your research and explore your options.
After answering these six questions, remove emotion from your decision and ask what your intuition is telling you. Also, never forget wild card risks; You don't know what you don't know!
