Traditional vs. Alternative Investments

Key Takeaways:

  • Whether you are investing your own assets or relying on income from a pension scheme, you can benefit from knowing how your money is invested.
  • Traditional investments can include equities, fixed interest securities, funds and cash. They can pay out income in a variety of ways.
  • Some common alternative investments are real estate, commodities and private equity. However, they will come with their own set of risks.

Are you planning on receiving money in retirement from pensions or from a personal investment account? Pension income can be incredibly important in retirement, but many investors also additional investment accounts if their pensions aren’t enough.

Within a personal investment account and even in some retirement plans or pensions, investors may be able to choose the funds or other securities to invest in. This decision is crucial to your long-term financial success and ability to reach your goals, so do your research! Regardless of whether you are investing your retirement funds or other savings, you can benefit from understanding the types of investments available to you.

Here is a brief overview of some traditional investments as well as some common alternative investments.

Traditional Investments

Before we discuss potential alternative investments for your retirement savings, let’s briefly cover some more traditional investments you might use.

  • Equities: These are shares of ownership in a company. If you buy equities, you may receive direct payments from these shares—known as dividends. You can also benefit if you sell equities for more than you purchased them, thus realizing some gains. Equities represent companies globally and many investors are able to build well-diversified portfolios with these securities.
  • Fixed Interest: These are debt securities offered by companies or governments in exchange for money. When you buy a fixed interest security, they will generally pay ongoing amounts—called coupons—until a specified date when the company will repay your initial investment.
  • Mutual Funds: These are pooled-asset products, meaning many investors buy shares of a portfolio that invests in underlying securities. Mutual funds come in many different styles and with many different goals and costs. They are commonly available in investment accounts and some pension accounts. If you are self-invested and don’t have enough money to justify buying individual equities or other securities, you may benefit from investing in funds.
  • Cash: This is simply money. Whether stored in a savings account or in your mattress, cash will earn little to no return but is available for income, large purchases or other needs.

These investments are some of the most common vehicles to invest your money or retirement savings. If you are self-invested and have the responsibility of investing on your own, you may have difficulty deciding what to own in your portfolio. Depending on situation, some investors could benefit from hiring a professional for financial advice.

Types of Alternative Investments

The definition of an alternative investment can vary widely depending on who you ask, but in this article we’ll broadly use it to refer to a few asset and security types that don’t neatly fit into any of the more common asset classes mentioned above. Most alternative investments in this sense are not inherently good, bad, safe or risky investments. They are typically just other assets that come with their own sets of potential risks and returns. Here are some common types of alternative investments.

  • Private equity: This refers to investing directly in private companies whose shares may not be available on a public exchange. The most common way to invest in private equity is through a private equity fund, which pools investor assets and chooses companies to invest in.
  • Real Estate: Real estate investing can be direct (leasing out property or attempting to resell it for a profit) or indirect (buying shares in a real estate fund or other pooled-investment vehicle).
  • Commodities: This refers to a useful or valuable item. However, in investing, commodities are most often raw materials, such as oil, gold or soft commodities like cotton and orange juice. Commodities are physical goods and their prices are driven solely by supply and demand. Supply and demand also affect equity prices, but equities may provide more growth potential as they provide access to a company’s future earnings and innovations.

These investments can seem enticing and alluring, but be sure to understand them before buying. Any investment comes with risks, and alternative assets are far from risk-free. If you’re considering these investments, you may benefit from seeking the advice of a professional to help you evaluate these risks.

Fisher Investments UK Can Help

Fisher Investments UK may be able to help you plan for retirement and analyse your pensions and other savings to make sure you’re on track. Every investor is different, and what may be right for others may not be the best choice for you. This is especially true for your optimal asset allocation—your portfolio’s mix of equities, fixed-interest, cash and other securities. Fisher Investments UK understands this need for a personalised investing approach. We are dedicated to getting to know you, your investing goals and personal situation. Call us today or download one of our educational guides as the first of our ongoing insights to learn more.

Investing in financial markets involves the risk of loss and there is no guarantee that all or any capital invested will be repaid. Past performance neither guarantees nor reliably indicates future performance. The value of investments and the income from them will fluctuate with world financial markets and international currency exchange rates.