Alternative investment isn’t a new phrase by any means, but – for the uninitiated – can you begin by briefly explaining what the term means?
To be honest, the term ‘alternative investment’ is a fairly broad church.
The phrase really refers to any kind of asset that sits outside what we traditionally think of when we think ‘investment’ – that is, anything other than the quite narrow options of stocks, bonds, and cash.
Alternative investments, by contrast, can take a huge variety of forms that are constantly changing and evolving.
Gold, for example, is an alternative investment that some people will feel familiar with, but newer ideas like cryptocurrency and NFTs equally fall under that umbrella, alongside a personal favourite of ours – real estate and property.
What’s the appeal of this kind of investment?
One of the key advantages of alternative investment is that they’re often shielded, at least to some extent, from the ups and downs of more conventional asset classes – if you invest in something like property, for example, you’re less susceptible to events along the lines of inflation or stock market fluctuations.
Alternative investment also offers investors the potential for quicker and more substantial returns – which is, at the end of the day, the main reason anyone invests.
Of course, the obvious caveat here is that – in some circumstances – the higher reward we’re all chasing can come hand-in-hand with higher risks, too.
That’s another reason why property and related areas remain the king of alternative investment – there’s a reliability to bricks and mortar that we’re not currently seeing in the world of, say, cryptocurrency.
Reliability has certainly been in short supply during the course of the pandemic. How has COVID impacted alternative investments as you describe them?
That’s a difficult question to answer, since – as I’ve mentioned – no two alternative investments are necessarily alike.
What we can do, however, is take a slightly different tack and ask how conventional avenues of investment have performed over the past couple of years.
For some investors, March 2020 was as memorable for its historic stock market crash as it was for the pandemic-related lockdowns that impacted our lives in more practical ways, with the S&P dropping by something like 34 per cent.
And, of course, we’ve seen a similar initial reaction to Omicron, with the start of December characterised by volatility.
Compare this volatility with investors who have, for example, chosen to invest in property-backed loan notes, buy-to-let property, or a similar combination of real estate-based alternative investments, many of whom have had a completely different experience of the pandemic and realised opportunities in spite of the more general disruptions facing so many people in recent times.
Let’s zoom in on the specific example of buy-to-let: have you found this specific kind of investment has retained its robustness in the wake of the pandemic?
It’s been well reported that there’s been a boom in the world of buy-to-let during the course of the pandemic – we saw an average increase in price of over 5 per cent by the summer.
While not quite as dramatic as the increases we’ve seen in the housing market more broadly, this is still a hugely significant indication that alternative investments like buy-to-let properties can snatch significant returns from the jaws of pandemic-related uncertainty.
What are your predictions for 2022 in the world of alternative investment?
This is a difficult time for anyone to make predictions about anything at all!
What I will say, though, is that – as always – bricks and mortar look to retain their solidity as we move into a fresh year.
Looking at the conventional housing market is a great way to underscore that point. Rightmove just recently predicted property price rises of 5 per cent next year, which is very healthy indeed, and I think we’ll see this reflected in the potential returns for alternative investments like property-backed loan notes.
After all, there are factors at play here that simply go beyond the temporary elements of the pandemic – there’s still a disparity between housing supply and demand, for example, and the North and Midlands regions still have a lot of room for growth.
That’s the beauty of alternative investments – it’s possible to see silver linings where, for conventional investment, there are only clouds.