The world seems to be obsessed with the latest, the newest, the next hot idea. A decade ago, it was BlackBerry phones and the latest Chuck Taylor shoes. A year ago, it was TikTok. Who can decidedly say what the next big trend is going to be?
Take, for example, the current craze for cryptocurrencies. They are the talk of investment and technology forums. They have central bankers around the world considering how—or whether—they can be regulated. In contrast, gold and other precious metals are among the most established investment assets in the world.
Diversification is one of the most important elements to consider when it comes to your investment portfolio. While most investors begin their career with stocks and bonds, there’s a wide variety of alternative investments that can act as great diversification tools to a traditional portfolio. Real estate and gold have long been viewed as viable alternative investments, but crypto is now on the rise as well.
This indicates that the tug of war between the believers of cryptos and their opponents — who support hard assets such as equity, precious metals and real estate — is intensifying. The lines have never been more blurred, so it’s never been more important to draw distinctions between the different asset classes.
Precious Metals
Gold needs no introduction. This is a tangible asset that’s been around since the dawn of time, the creation of the universe, the whole Big Bang. You can hold it in your hand, wear it as jewelry on your finger, wrist, or neck. You can invest in it as a physical asset or through an exchange-traded fund. Gold has long been touted as a “real asset,” one that investors flock to in times of economic upheaval or uncertainty.
It’s also used as an inflation hedge, as it is seen as a store of value when other assets become worth less due to the effects of inflation. But the most important thing to remember is that gold also doesn’t correlate very well with the stock market, making it a good diversification tool.
One of the drawbacks of investing in actual gold bullion is that it is bulky and heavy and must be stored somewhere. It’s also not particularly liquid, as dealers charge a markup to buy the metal and will never pay the actual market price if you’re selling. Gold also doesn’t pay any dividends or generate any cash flow, unlike stocks or (potentially) real estate. If you simply want access to the gold market without owning the actual bullion, you can buy an exchange-traded fund that tracks the gold market.
Cryptocurrency
Cryptocurrency has become sort of a major buzzword recently. First created in 2009 with bitcoin, these are essentially virtual coins “mined” using open source software based on blockchain technology. Other common cryptocurrencies include ethereum and litecoin.
Cryptocurrency is a relatively new entrant into the investment world. However, crypto has been all the rage in 2020 and 2021, with numerous coins posting gains of 1,000% or more. The debate over the long-term viability of crypto is polarising, with one side believing it is essentially worthless while the other believes that it will eventually replace fiat currencies like the U.S. dollar. This massive uncertainty as to the true value of the asset class has made crypto notoriously volatile – but has definitely put money in people’s pockets.
Real Estate
The housing market has been on fire over the past year or so, and many investors are paying more attention to real estate as an investment. The value of real estate doesn’t correlate with the stock market, so it’s a great way to diversify one’s holdings. Real estate also boasts of many options when it comes to investing, from personal home ownership to rental properties and commercial buildings.
Generally, real estate grows a bit more than the inflation rate. There are also many ancillary benefits to investing in real estate, from potential tax write-offs to steady cash flow. Picking the right real estate investment is like choosing a stock — not all are the same, and for real estate, location really can be everything. Liquidity can also be a problem with real estate, as transactions can take days, weeks or even months.
This year, as with all the rest, it’s worth remembering that there are no shortcuts when it comes investing. Investors would be well to focus on generating long-term wealth, trim their expectations from different asset classes and focus on staying invested in the longer run. It is important that they do not overestimate their risk appetite or underestimate the possibilities of low returns from any asset class, point out experts.
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