Times are changing. Back in 2007, 65% of American adults reported investing in stocks. Fast forward to 2016, and only 52% said they have money invested in equities. This represents the lowest ownership rate of stocks in the 19 years of Gallup’s annual economy and personal finance survey.
So, where is all the money going? While there are no clear answers to this question, there are alternatives to the stock market which might be palatable to certain investors. We’ll explore these asset classes and ways in which even average investors might take advantage of their opportunities, or you can just opt for aussie casino online to boost your income.
While there is an ever-growing list of alternative investments, here are the five most common categories.
Unlike shares from publicly traded companies or exchange-listed mutual funds, shares of private equity investments aren’t available on a public exchange. Instead, private equity is only available through private companies that seek underperforming businesses, turn them around using their team of expert managers, and increase the profitability of those businesses. Once the market value of the purchased business increases, the private equity firm sells that business and gains a percentage fee from the sale proceeds. Additionally, managers of private equity firms often gain an annual fee for providing their management expertise to acquired companies. Then you can proceed to play some games at nz online pokies for some extra cash that can be used to invest.
A subset of private equity firms, venture capital companies focus on startups and small businesses that have long-term growth potential. Venture capital is a great opportunity to secure much-needed financing for companies with very limited operational history. In exchange for that cash flow injection, startup founders and small business owners provide venture capitalists (also known as “angel investors”) a major say in most management decisions of the startup.
In recent years, some recipients of venture capital have turned into “unicorns” — companies with an estimated valuation of more than $1 billion — with Forbes listing American ride-sharing firm Uber and Chinese consumer electronics manufacturer Xiamoi in the number one and two spots, respectively. Venture capitalists are the first to profit when a startup or small business is acquired by a larger company or becomes listed on the stock exchange through an initial public offering (IPO). Unfortunately, angel investing usually requires significant capital of your own, so it’s difficult for most investors to gain access to this investment class.
These are yet another subset of private equity firms. They’re called hedge funds because when they first started, they had the objective to limit — or hedge — investment risk through a series of financial vehicles and investment strategies. However, that definition no longer applies and hedge funds are known as aggressive, risk-seeking investment funds that typically use leverage to offer “alpha” (abnormal rate of return against a benchmark).
Like private equity and venture capital firms, hedge funds pool funds from a number of accredited and institutional investors. Unlike other private equity and venture capital firms, hedge funds focus on a much broader set of assets and investment strategies, including equity long-short, distressed assets, arbitrage, macro-trends, and managed futures. Like angel investing, hedge funds are often reserved for investors with significant capital.
Wealth managers, mainly those of hedge funds, use futures (financial obligations for a buyer to purchase an asset or a seller to sell an asset at a predetermined future date) and options (rights to buy or sell an asset at expiration) to diversify among asset classes and mitigate the risk of an existing portfolio. Futures and options provide a way to diversify risk that isn’t available through investments in direct equity.
In addition to futures and options, a wealth manager could use other derivatives, such as forward contracts, swaps, and mortgage-backed securities to diversify a portfolio. All of these types of contracts are very complex and have been subject to scrutiny by several government agencies. For a primer on mortgage-backed securities and other derivatives, watch The Big Short.