Alternative investments are assets other than the traditional stocks, bonds, and cash. They include a wide range of options, such as:
- Commercial Real Estate (CRE): Properties like warehouses, offices, and retail centers.
- Private Equity: Investing directly in private companies.
- Private Credit: Lending to businesses.
- Infrastructure: Projects like solar farms and toll roads.
Globally, the alternative investment market is booming, with assets expected to grow from $18.2 trillion in 2024 to nearly $30 trillion by 2029. In South Africa, these options are gaining popularity as investors look to diversify their portfolios and protect their money from inflation.
Why You Should Consider Alternatives
- Diversification: Alternatives often move independently of the stock market, which can help stabilize your portfolio during downturns.
- Higher Returns: Private equity has historically outperformed public stocks, and CRE can offer strong returns through both rental income and property appreciation.
- Inflation Protection: Assets like CRE and infrastructure can tie returns to inflation, helping to preserve the purchasing power of your money.
Commercial Real Estate: A Powerful Inflation Hedge
Inflation is a silent wealth killer, and while residential property may seem safe, commercial real estate is often a better defense. Here’s why:
- Built-in Rent Increases: Commercial leases often include clauses that automatically raise rent annually, typically tied to the Consumer Price Index (CPI), ensuring your income keeps pace with inflation.
- Stronger Appreciation: Prime commercial properties can appreciate faster than residential homes, adding to your overall return.
- Stable Tenants: Businesses often sign long-term leases (5-10 years), providing a predictable and steady cash flow.
Beyond Real Estate: Other Alternatives Shaping the World
Private Equity
This involves buying stakes in high-growth private companies. Private equity has delivered strong returns and is a key driver of innovation, funding everything from tech startups to renewable energy firms. While it requires a long-term view and can have high minimum investment amounts, it offers a path to significant growth.
Private Credit & Infrastructure
Private credit involves lending directly to businesses, while infrastructure investing supports critical projects like energy and transport. Both offer stable cash flows and help address key societal needs, from funding small businesses to developing clean energy solutions.
The Changing Landscape of Investing
Alternative investments are no longer just for the super-rich. They are becoming more accessible through platforms that allow for fractional ownership and lower minimums. These investments are also doing more than just building wealth; they are:
- Driving Innovation: Funding the next generation of disruptive companies.
- Addressing Global Challenges: Channelling capital into sustainable projects and solutions for issues like climate change.
As legendary investor Warren Buffett famously said, “The stock market transfers money from the impatient to the patient.” By being patient and exploring alternatives, you can make your money work harder, outpace inflation, and even contribute to a better future.
