Submitted by nsscadmin on
Alternative investments are more complicated and complex investments that are generally not suitable for novice investors.
Alternative investments usually take on higher-than-average risk in return for the potential for higher-than-average returns. Due to their complex nature and higher risk, they are meant for very knowledgeable investors and investors that have considerable wealth and can afford to take on the added risk.
A few examples of alternative investments include – Options, Income Trusts and Hedge Funds.
An option is a form of derivative contract that gives the investor the right to buy or sell a specific asset at a set price at a set time. Money is gained or lost by buying or selling for a profit or a loss when the time comes.
An income trust is a trust that is designed to distribute cash to investors. The most common types are real estate investment trusts, oil and gas income trusts, and business income trusts. Returns are dependent on profits and tax benefits.
A Hedge fund is like a mutual fund in that it pools money from many investors and is managed by a fund manager. However, in a hedge fund the fund manager can use more advanced and more risky investment strategies. Due to the increased risk a hedge fund is only open to wealthy investors that can withstand the risk and are able to pay what are typically substantially higher fees.
