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However, that’s only the tip of the iceberg. There’s another category of investments that includes some of the most dynamic assets you can get your hands on.
Without question, one of the best ways to diversify your investment portfolio is to put money in alternative investments.
These investments have become more accessible today for investors of all ages and financial capabilities. Even if you are not considering putting your money in alternative investments, you should familiarize yourself with this option.
What are Alternative Investments?
Contrary to what many people think, it’s so easy to start investing. However, the questions start to pour in after you dig into the options.
Imagine your retirement fund is already taken care of, and you also have a fair mix of cash, stocks, and other traditional investments.
As you increase your net worth, you want to take your investment portfolio up a notch. Along the way of exploring for investments, you may have encountered the term alternative investments.
But what is it?
Alternative investment is a broad term that encompasses assets that are not cash, stocks, or bonds. It includes hedge funds, private equity, and commodities such as your art collection, and jewelry.
Don’t get your hopes up, though – your travel mug collection does not count as an alternative investment.
Alternative investments can balance out your portfolio so you won’t have all your eggs in one basket. Most of the time, when bonds and stocks drop, commodities and real estate assets rise.
Features of Alternative Investments
If a person with a traditional investment were to look at their portfolio side by side with someone that focuses on alternative investments, they would see a massive difference.
Here are the characteristics of alternative investments that make them unique.
It’s not related to the stock market
If you’ve been investing for quite a while, you may have investments in the stock market and you’ve likely experienced major losses and big wins.
If you’re tired of watching your investment drop and rise dramatically, you need to diversify it through alternative investments.
An investment that is not dependent on the stock market entails that its value would not go up or down depending on the state of the market. This distinction is an amazing way to protect your money against volatility.
It yields a non-normal return
One of the most common features of alternative investments is non-normal return and distribution.
For this type of investment, there can be a high negative or positive skewness where the probability and size of your profit and losses are drastic.
It is quite normal for alternative investments to have extreme returns or losses compared to traditional assets. However, most of them offer huge returns in the long term.
It has low liquidity
Liquidity is the ease with which your investment is bought or sold without affecting the price of the security.
How your traditional asset can be converted into cash varies compared to alternative investments because it may have fewer sellers or buyers.
Not only that but it also tends to have a lack of standardized terms. Therefore, it’s hard for investors to analyze and value them.
It is hard to value
Because they are illiquid, it’s more challenging to determine the value of alternative assets.
Since these assets are traded outside public markets, it’s harder to figure out what their fair market price is because most transaction details of the same assets are kept in private.
Because of this, people with real estate and private equity investments tend to value their properties based on theoretical models and appraisals.
These two are subject to biases and even conflict of interest.
You need to have due diligence
Before you go with alternative investments, you need to research.
Due diligence with these types of assets is quite consuming and expensive because of the complexity of holdings and exposures, its diversity, and the lack of transparency of fund managers.
It has a high purchasing cost
If small investors want to get their foot in the door and invest in alternative investments, they may have a hard time doing so.
Some alternative investments are notorious for being exclusive to rich people, and these are only marketed and sold to qualified people who are defined by law to have a set amount of net worth.
Thankfully, that is not the case with all alternative investments today. There are types of alternative assets that are widely available, and you can trade some of them with little capital.
Benefits of Alternative Investments
We’ve rounded up the upsides of investing in alternative assets below.
High return potential
Alternative assets are very lucrative. Although there is more risk with going with this asset class, there is also a higher return potential over the long term.
If you do due diligence and research and get the asset at a low price, your long-term return can be huge.
It shields you from volatility
Alternative assets have a low correlation to traditional assets. Because these assets are not usually traded on a regulated exchange, their values are not connected to the market.
This will shield you from potential volatility.
Extreme fluctuations in the traditional asset market are inspired by human emotions. For instance, if there is a financial crisis, investors panic and sell at the worst possible time.
On the other hand, alternative assets have lower volatility and may even mitigate the swings in your emotions.
6 Best Alternative Investments in the Philippines
There are many alternative investment options available in the country. Here are some of our top choices.
1. Real Estate Crowdfunding Platforms
This type of alternative investment works by getting investors to raise capital for a real estate project.
It’s a great way for investors who do not have the cash to get the funding they need to buy a property, or do anything related to real estate.
How it works:
Some platforms follow an REIT-style approach where you can incorporate your investments in your portfolio.
However, these investments start as illiquid so you may not have access to a marketplace if you want to redeem your shares immediately.
Depending on your investment, you have to wait for its liquidation. This may be the sale of the real estate property.
It’s important to note that this investment also has a drawback. In June 2021, the Securities and Exchange Commission (SEC) flagged Flint PH, one of the most popular real estate platforms in the country. According to the SEC, the company was not authorized to collect investments1.
How to get started:
Crowdfunding has exploded in popularity in recent years, and all you need to do to get started on this investment is to join a platform and invest.
Despite only starting in 2019, Flint has become widely successful in the Philippines. The company has pre-funded real estate properties in its portfolio. This pre-funding process allows investors to earn a higher interest quickly.
Minimum investment: Php1,000, with a promised 12% return per annum
How to register: Sign up at Flint
Upbuilds is under the management of Matapat Na PAgtutulungan Multipurpose Cooperative that aims to raise funding for Filipino asset-backed business projects.
Through this, investors can diversify their portfolio of property assets. After an investment is made, you can view and manage your transactions through your profile.
Minimum investment: Depending on the project, but the maximum investment is up to 10% of the total capital
How to register: Sign up at Upbuilds
2. P2P Lending
Peer-to-peer or P2P lending is a form of direct lending of money to businesses or people without the help of an intermediary. It can be done through platforms that match borrowers to lenders.
Unlike banks, P2P lends money to borrowers that are combined from different investors.
How does it work:
P2P lending is also known in the Philippines as “Paluwagan,” with just a few differences. Investors earn money from this through the interest they gain on the money they lent the borrower.
How to Get Started:
Here are the different P2P platforms you can try.
Blend Ph is managed by Inclusive Financial Technology, Inc. and offers loan products like franchise loans, seafarer loans, and salary loans.
Minimum investment: Php5,000, with a 6% to 30% interest per annum
How to register: Sign up at Blend Ph
The biggest financing platform in Southeast Asia, this platform connects businesses looking for loans to investors who want to enjoy short-term investments.
Minimum investment: Php1,000, with at least 7% interest in one to 12 months
How to register: Sign up at SeedIn
3. Private Equity & Venture Capital
Private equity and venture capital are usually interchangeably used. However, they are not the same thing.
How it works:
Private equity refers to a group of investors who invests directly in a company. Usually, the investors who want to invest in this alternative asset focus on companies that have matured and are already past their growth change, or businesses that are in financial distress.
Private equity can also mean buying out a business and improving its operations before selling it for a profit.
Meanwhile, venture capital is a form of private equity. The difference between the two is investors who want to focus on private equity prefer stable companies, while venture capitalists come to invest during the early phase.
This way, they can give growth potential to a company.
How to get started:
Here are some of the Venture Capital Firms and Private Equity Funds in the country.
Investment & Capital Corporation in the Philippines Venture Partners
ICCP is one of the pioneers in the Philippines when it comes to venture capital investing. They invest in several industries such as construction and engineering, core technology, and software, among many others.
How to register: Email email@example.com for investment proposals
This was founded by JJ Atencio and partners in 2016. The company’s focus is to back those who offer original solutions to high-growth markets.
The key industries they invest in are advertising, FinTech, fashion & sports brand, FoodTech, and Hospitality.
4. Arts, Collectibles, & Antiques
Acquiring art, collectibles, and antiques will enable your investment to reach new heights. These items are a hot commodity, especially among the rich.
How it works:
When it comes to collecting these pieces, it is recommended to do so out of passion. If you love art, you should get pieces that you love looking at, instead of purchasing them for money-making purposes.
These investments are a great choice because of the value it brings to your home aesthetic-wise, as well as its potential financial gain in the long run.
Despite having long holding periods, these alternative assets are not only exclusive to the rich.
How to get started:
One of the easiest ways to get started with this alternative investment is through the help of reliable auctions and galleries. This way, your due diligence effort can be minimal because you’re sure that you’re not getting a rip-off item.
This is the premier auction house in the Philippines. They specialize in jewelry, fine art, decorative art, and collectibles. The schedules of their ongoing and upcoming auctions are available on their website.
How to register: Whether you are bidding for an online or in-person auction, or doing a telephone or absentee bid, create an account here. Then, deposit a Php20,000 refundable registration fee. The amount will be credited to your next purchase.
Leon Gallery Auction House
Driven by their mission to make Filipino-made art more accessible to everyone, Leon Gallery Auction House links buyers and sellers.
Their team includes experts that work on authenticating and documenting art. They are also in charge of storage and preservation so you don’t have to worry about anything else.
How to register: Sign up here to join their auctions. All upcoming sales and catalogs are posted on their website. They also offer PDF files that contain information about pieces, or new work you may be interested in.
For new bidders, register one week in advance and bring a valid ID to the location to get your paddle. For online bidders, register here. Online bids usually have a 2-week bidding window.
Learn More: How to Invest in Art in the Philippines
Commodities are basic goods. These can be transformed into other goods or services, and are a very lucrative investment.
Commodity investing or trading is not something new. Even before bonds and stocks started, commodity investing and trading has been a booming business that linked different cultures.
However, it has come a long way from only centering on silks and spices in the early ages, to oil, gold, base metals, and many more.
How it works:
While there is no specific time to get the most value out of your investment, it is recommended to buy before a high inflation period.
If you want to get started in the commodity market, you can invest directly in the physical commodity. You may also invest indirectly through purchase shares in commodity companies, foreign exchange-traded funds or ETFs, or mutual funds.
How to get started:
Non-fungible tokens are getting more traction in the digital asset world. Also called NFT, these unique tokens cannot be replaced with something else similar.
It’s like having a piece of painting like the Spoliarium – although there are copies of the painting, only one person owns the original one.
How it works:
NFTs are digital assets that can be bought and sold similar to other properties. However, they do not have a tangible form. Just like cryptocurrency, there is a record of who owns the NFTs in a shared ledger.
These records are impossible to forge because they are maintained by countless computers around the world.
How to get started:
Unlike liquid tokens, NFTs are not publicly traded. If you want to start your collection, you need a digital wallet that will allow you to store NFTs and other cryptocurrencies.
Simply create an account on the platform, and connect it to your digital wallet. Here are some NFT marketplaces you can check:
OpenSea is one of the largest NFT marketplaces in the world.
Here, you can purchase tokens that represent ownership of artworks, domain names, trading cards, sports collectibles, and many more.
On this platform, NFT artists receive an invitation from fellow creators to post their art.
This exclusivity scheme makes it a wonderland for investors who want to get high-caliber artworks.
This NFT marketplace is owned by community members who are holding RARI tokens.
While this marketplace puts heavy emphasis on art, there are many more items you can get here.