Alternative Investments Explained

Alternative investments are popular investment vehicles, particularly among experienced investors. They can often offer higher returns than more traditional investment routes - though these returns are not guaranteed.

Property, peer-to-peer loans and venture capital are all examples of alternative investments.


What is an alternative investment?

An alternative investment is an investment that doesn’t fit into one of the more traditional asset classes of cash, stocks and bonds.

There are many different types of alternative investment (incluidng property, peer-to-peer loans and venture capital), and there are two key forms - tangible and intangible. 

Many alternative investments offer generous methods of tax-efficient investing, and are particularly popular with experienced investors. 

What are the different types of alternative investment?

There are several different types of alternative investment. All posess their own benefits, making them a hit with experienced investors in particular.

Alternative investments offer a variety of underlying assets, and they often allow investors to take advantage of tax-efficient methods of investing - such as through an ISA or Venture Capital Trust (VCT). 

The main alternative investments are;

  1. peer-to-peer loans
  2. venture capital 
  3. private equity
  4. property
  5. collectables such as antiques, art and wine
  6. hedge funds
  7. annuities
  8. cryptocurrency

Are alternative investments a good option?

Alternative investments are, generally, more complex in nature than traditional investments. This is why they’re predominantly more suitable for experienced investors. However, the growth of alternative investments have seen some - including peer-to-peer loans - catch the eye of everyday (restricted) investors in recent times. 

But, are alternative investments a good option? 

Alternative investments have many benefits. Firstly, they don’t correlate with the stock market, meaning they can add a valuable element of diversification to an investment portfolio, helping to reduce volatility. 

There are also a number of tax benefits available with alternative investments - such as EIS and SEIS - that are not accessible with traditional investments. In addition, alternative investments including peer-to-peer loans and property can be accessed through an IFISA, which makes all returns tax-free. 

What is the Alternative Investment Market (AIM)?

The Alternative Investment Market (AIM) was launched in 1995 - replacing the Unlisted Securities Market - and is a sub-market of the London Stock Exchange (LSE). 

The purpose of AIM is to help small companies - who cannot cover the costs or do not meet the requirements associated with listing on the LSE main market - raise capital in order to grow.

What methods of tax-efficient investing are available with alternative investments?

There are a wide variety of methods of tax-efficient investing that are available with alternative investments.

This includes ISAs such as the Innovative Finance ISA (IFISA) and Stocks and Shares ISA, the Enterprise Investment Scheme (EIS) and Seed Enterprise Investment Scheme (SEIS), and Venture Capital Trusts (VCTs).

What is a fixed term bond?

A fixed term bond - also know as a fixed rate bond - can either be an investment product or a savings product, and it's critical that potential savers and investors understand the difference between the two. The current rates for a fixed term or fixed rate savings bond are typically between 1% and 2% per annum, while a fixed term investment bond may offer target rates of between 4% and 8% per annum.