In the current climate of low interest rates and poor yields on traditional investments, many investors are becoming dissatisfied with the rate of return on their money and are starting to look at alternative investments to boost their savings. However, alternative investments vary considerably, and it is important that investors select those which are the best fit for their appetite for risk and financial goals. The following are a selection of alternative investment products.
Buy To Let Property
This can be a very appealing investment, but a deposit of up to 25% of the property’s value may be needed in order to get a buy to let mortgage. The rental returns are not guaranteed; for example, the property may be empty for a period of time between tenants. The property may also require further financial investment to carry out repairs and refurbishment, as well as considerable time and effort to comply with all the legal responsibilities which now apply to landlords. It may be hard to sell the property quickly if cash is needed.
These are possibly the safer end of the alternative investment market; they are a contract that a financial institution will pay a certain return on a certain date, and are dependent on the performance of the stock market. For example, the contract might state that in a year’s time, the investor might get a return of 20% on their money if the FTSE 100 remains above a certain level. The risks are that the financial institution may fail or that the FTSE 100 may perform very badly.
These are short-term loans used by homeowners who need to buy a property before their mortgage has been approved. It is possible to invest in funds that pool bridging loans in order to spread the risk; the minimum investment was once around £25k, but the entry into the market of specialist companies has reduced this as low as £10. The loan is secured against the property, but in practice it may be hard to recover the money if the property owner defaults.
Business Angel Investing
Business angel investing gives investors the opportunity to invest in a small business which is not quoted on the stock exchange. If the business does well, the investor could make several times their investment, but if it fails then they could lose all their money. There may be no returns at all until the business is sold or floated on the stock exchange- and this might never happen.
For investors who are fully aware of the risks involved and who can afford to lose their money completely, alternative investments could be an exciting way to see a good return on their money.