When the stock market makes people nervous, they tend to turn to alternative ways of making money. Alternative investments provide interesting ways to make money when you are concerned about stock market volatility. However, it is important to be careful of these alternative investments. After all, some of them can prove to be even riskier than stocks. CNN Money recently shared an interesting list of alternative investments that might seem a little off:
- Dressage horses
- Dairy cows
- Vodka distillery
- Collectible guns
- Chicken feces (not currently approved, but someone is trying)
- Beauty school
- Habanero pepper farm
- Christmas tree farm
- Organic sprouts
Of course, you can find success stories on even the most obscure investments. However, not everyone will do as well (daily cows anyone?). Before you invest in anything, it’s important to do your homework.
Researching a Potential Investment
Even before you invest in something as mundane as an index fund, it’s a good idea to do some research. And, getting an “inside tip” from your gold buddy doesn’t count as “doing research.” Instead, you need to look into the investment on your own, and decide whether or not it’s a good idea. Some things to consider as you determine what might make a valuable addition to your investment portfolio include:
- Do you know how it works?: It’s usually best to invest in something you know about. If you are acquainted with the vodka market, and you know how to directly purchase a distillery, or how it works to venture-fund a start-up beauty school, then that is something you can consider. But, before you invest in something, it is a good idea to know how it works.
- What’s the future market like?: You should also have an idea of future growth prospects. Your organic sprout venture might actually be taking a hit right now, since the recent food borne illness scare in Europe sent sprout prices plunging. Research the possibilities for growth for your investment. One of the reasons that many people are looking into medical device companies right now is due to the expected demand from aging Baby Boomers. Others are looking at investing in funeral homes and services, since there is expected to be some market growth down 20 to 30 years down the road.
- How is it managed?: Before you invest in a dairy farm, or any other possibility, it’s a good idea to know how things are managed. Competent managers can make a real difference. Even with stocks, you want to know whether the company management is solid, and whether there is a good profit margin. Check into revenues, check past performance (is the venture improving?) and look at plans for the future.
Anytime you make an investment, you are taking a risk. Make sure that you don’t invest more than you can afford to lose — just in case. If you make the wrong call on a big alternative investment, that can be even more devastating than watching your retirement account languish for a few years while the economy tries to recover. Make sure that you are prepared for the risks, and that you do what you can to minimize them.
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