According to Investopedia, the type of investing I do is called alternative investing or alternative investments, and they define it as follows:
An alternative investment is an asset that is not one of the conventional investment types, such as stocks, bonds and cash.
I have to say that I don’t consider cash an investment. In fact, I only keep enough cash on hand for operating expenses and emergencies. Beyond that, I get rid of it as quickly as possible and exchange it for assets.
When I get into conversations with conventional investors about my alternative investments, I get some interesting questions. The other day I was telling a friend about a place where he could earn 10% on his money with a minimum investment of $100. It’s completely liquid, and it doesn’t require accredited-investor status. The company is AHP Servicing, and it’s almost like a 10% savings account.
The questions I was asked were, “Is it guaranteed?” and “What’s the risk?” Now, if I was recommending a stock, bond, or mutual fund, I don’t think I’d get these same questions. I think the questions are an emotional and defensive reaction to something people don’t understand. As Investopedia says, these investments aren’t conventional.
Most people should know that EVERY investment has some element of risk and almost none are guaranteed. It seems like a double standard to me. I’ve found myself so taken aback by these questions that I’m often at a loss for words.
The truth is, alternative and conventional investments are not guaranteed, and they all have similar risks, so instead of promulgating the double standard, let’s layout some answers to these questions for all investments.
Question: Is the investment guaranteed?
Answer: No. The only investments that could be considered guaranteed are U.S. Government Bonds, FDIC-Insured Savings Accounts, and perhaps annuities.
Question: What are the risks?
Answers:
-The team running the company or deal could be dishonest or incompetent.
-The team running the company or deal could be honest and competent and still not be able to deliver the anticipated results.
-An economic cycle could negatively affect the market and the investment’s performance.
-World or regional geopolitical events could negatively affect the market and the investment’s performance.
-Government regulations or taxation could negatively affect the market and the investment’s performance.
-And the list goes on and on……
The bottom line is, you might want to keep an open mind when a trusted friend or colleague presents you with a new idea. Otherwise, you’ll never know what you might be missing.