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Where to Invest in 2022?

It’s an exciting world out there. Beyond property and shares, there’s a host of interesting investment options, says Amy Hamilton Chadwick.

19 January 2022

Shares and property hog all the attention when it comes to investments.

They’re relatively easy to understand and there’s a huge amount of information available about them; they’re what we know and what we’re used to.

But sometimes you hear about something more exciting. Maybe it’s a kiwifruit orchard. Maybe it’s Bitcoin. Maybe it’s a stake in an exciting new business.

These are ‘alternatives’: investments beyond the traditional shares and property asset classes.

Alternatives can be almost anything, from forestry to commodities to stamps.

This enormous category of investments means it’s hard to talk about alternatives in general, but they usually share certain characteristics.

They’re riskier than traditional shares and property; they have higher potential returns; they are less regulated; there’s far less information about them; and they are less liquid (harder to sell if you want to get out).

With some careful choices and a bit of luck, alternatives can pay off handsomely. But jump in too hastily and you can wave goodbye to your money.

“With alternatives, there’s usually a lack of transparency, and also more uncertainty about the outcomes,” says Amelia Wong, investment adviser at Craigs Investment Partners.

“A forestry investment, for example, can be very dependent on factors outside your control, like the climate, the increasing costs for growing the timber and the future price of logs. With alternatives, you can do extremely well or lose the whole lot.”

Why invest in alternatives?

Alternative investments add diversification to your portfolio and allow you to take a chance if you spot an opportunity in the market.

Some of the most commonly held alternatives for everyday Kiwi investors are private equity, venture capital, and shares in farms and horticulture operations.

“The diversification means that if something changes in the housing market, like a new government regulation that prevents house prices rising, or something goes wrong in the share market, investors have another asset class that may give them a bit of performance,” says Wong.

You could invest in a start-up business, for instance, or forestry, or a single farm.

“It could do really, really well – or there could be major problems, or a massive flood,” warns Wong.

“That’s why this should be a smaller piece of your investments.

“If there’s money I need for retirement, I want to count on it being around. I might want to take a chance, experiment with some investments, but it needs to be money I’m not relying on.”

Choose something you understand. Diversification is a great for your portfolio, but many people get into specific alternatives because they’ve heard about them from friends.

Fear of missing out can be a major driver, but conversations over dinner should not be how to make investment decisions.

“Nobody wants to hear their friends talking about the farm investment that made them millions, or their success in the latest hot hedge fund or trading strategy and feel like they’ve missed out,” says Wong.

“But it’s good to remember there’s no such thing as a free lunch. If there’s a higher return, there’s more risk involved, and if you don’t know where the risk is, you should be asking more questions."

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