Traditional investments are more accessible to most investors, as they don’t require so much of high payments. But even wealthy investors enjoy working with them to their simple nature. Cash, stocks and bonds make up traditional investment, as well as exchange-transfer funds and mutual funds. Most of these are heavily regulated by federal standards. Alternative investments, on the other hand, are not of the same caliber. Wealthier investors tend to work with these, as they have far less government regulations, are more complex in their rules and that have less liquidity. There is a higher minimum investment payment that must be made to be a part of these investments, which can range between hedge funds, commodities, real estate, managed futures and derivatives. These are for investors who are interested in riskier forms of making profits.
For investors, one of the attractive things about alternative investments is the fact that they are heavily regulated by the Securities and Exchange Commission (SEC), nor are there are any other sorts of strict governmental regulations on them. They are not required to provide verifiable performance data – this is attractive to some investors, and not for others. Traditional investments on the other hands are subject to these requirements, so for wealthy investors who value freedom and discretion, these are a good option for them. There are instances where large institutional funds, like pensions and endowments, will put around 10% of their money into some alternative investments like hedge funds in order to make a profit. They are popular because returns are not correlated.
For smaller investors who are unable to make investments in alternative investing (which are saved mostly for the wealthier investors), there are still opportunities for them in real estate and commodities, like precious metals and stones. Alternative investing offers profit in any sort of economic environment, but there are obviously a lot of risks involved in managing them, which is why investors will need help in doing so. There are several financial accounting services that are sought out in order to keep their money in check.
In order to keep all financial records in check, a CPA firm is hired to do the job, which can be tedious. It is their job to calculate values on these investments, which can be allusive and difficult. Alternative investments can range from anything like a collective trust fund to real estate to hedge funds to private equity funds and more, and a good certified public accountant knows this. Their calculations are recorded in private financial statements, and because of the lack of strict governmental regulation or state regulation for that matter, it gives a lot of flexibility for investors to work together and use creative investment strategies in order to make more profits.
Alternative investments are actually recorded by the IRS as well, and it’s the accountant’s job to make sure there that there is no tax trouble brewing. The accountant that is hired to work with investors will have to be savvy and smart in order to keep up with all the financial activity going on, as making those calculations are hard when there is no room for error. Reporting alternative investments on their own require certain documentation of financial disclosure that the accountant will know how to best deal with, as gathering these documents together can be a real hard task (and this is why investors don’t deal with this, because they understand that they can easily make a mistake that can put them in real trouble unintentionally).
There are simpler (and slightly more accessible ways to get into alternative investments), which is through commodities and real estate. Anything you buy to resell is treated like personal property that you have decided to advertise and personally sell to another person – this is why there isn’t government regulation on these kinds of purchases. It’s more like buying and selling retail. When you are buying property or commodities like precious metals and precious stones, you are doing so with the expectation that they value will increase over time, and then you resell it at the higher price. It sounds simple enough, but when you are looking into purchasing a work of art in order to sell it later, who is to tell you at what value it’s worth? You will certainly need the consultation of your accountant in order to attempt at making a proper calculation on whether or not it’s worth investing in.
As far as making the decision to invest in these types of investments, you will need to do as much research as you can and talk to an accountant that has years of experience in this subject.