What's Alternative Investing? We Asked a Finance Expert for Help

Updated 05/08/18

A few months ago, I was at an event with Nicole White, a personal finance education specialist at Swell Investing, when a familiar confession took place. A group of women took turns introducing themselves and their work, and when White said her profession, one woman exclaimed, "I don't know anything about finances!"

The truth is that this woman isn't alone—the word "finance" in itself can be scary, and it's common for many people to treat it with the same weary distance as an overdue dentist appointment. However, there's mounting proof that women are claiming their space in the particularly male-dominated sphere of finance (and making money moves that have changed the industry). A recent story in Economist found that women are getting their fair share of inheritances and taking fewer risks in the stock market than men are.

In other words, they're learning the flip side of that familiar confession: Knowledge is power.

"Women express their values through their portfolios," Economist declared, which is directly related to a term called "alternative investing." This type of investment just so happens to be right up White's alley. So we spoke again about what alternative investing is and why more women should consider it as part of their portfolios.

Alternative Investing
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What Is Alternative Investing?

"When people talk about alternative investments, they typically are referring to investments that are outside of the most popular asset classes like stocks, bonds, and cash. Hedge funds and real estate are examples of alternatives," White says. "But some are more unique investments like art, wine, and even fashion items. So, yes, your new Chanel bag can officially be considered an investment!"

White notes that a type of alternative investment that's popular with wealthy investors and institutions (like foundations or university endowments) is private equity—an investment into a private company. "When a private equity investment is made with the intention of achieving a positive social or environmental impact, that's impact investing," she says.

"In the past, impact investing was mostly available only to the very wealthy. But with Swell, we make it possible for investors to achieve social and environmental returns alongside financial returns through equities or stocks," she says.

Why Should Someone Invest in Them?

"The reason that most people make impact investments is that they are conscious about how their money influences the world and they want to use their dollars to support social change," she says.

"Voting with your dollars is a real thing and carries measurable power," White notes. "When you drive past the big-box store to support a local retailer, you're voting with your dollar. When you forgo interest in companies harming the planet and invest in the ones actually making a change, it's the same principle."

Alternative investments along this definition can be what White refers to as a "win-win," or something that helps your wallet and the environment. Alternative investments are a good idea for those who want to diversify their portfolio, given their existing positive net worth.

Who Should Consider Them?

White takes a firm stance on the type of person who should be considering alternative investing. Simply put, everyone who can afford it should do it. "If you're living on the grid and have even the tiniest bit of money to invest, you need to be investing. Period," White says.

"Whether you go for traditional methods like your company 401(k), open an IRA, or straight-up stocks—it's the key to your financial future. You'll never save your way to wealth, so you need to grow your money."

What Are Some Benefits?

"The impact market performs similar to the traditional market—if not better—so the real benefit is what it can offer outside of returns: progress," she says.

From White's perspective, alternative investments like impact investing relate to how the world is evolving on natural and societal scales. "Previous generations innovated because they wanted to, but today, companies innovate because they have to," she says. "Resources are becoming scarce, and innovation will create a better world. It's a market opportunity, sure, but it's also the new normal."

What Are Some Pitfalls?

"It can be super scary to get into something new, even if it's just new to you," White notes. "Also, the stock market hasn't been looking too hot these days. Over time, it will correct itself, but it's still a little bit nerve-racking." The silver lining, White says, is that a down market is actually the best time to buy.

What Should Beginners Look Out For?

"First and foremost, be comfortable with what you're getting yourself into. You don't need an MBA, but you should peruse the FAQ," White notes.

Thorough research may be key to a strong financial future, or at least finances that reflect personal values. That's why White says that it's important to learn about what you're investing in since some companies can surprise you.

"A lot of people are shocked to find out that they're part owners of companies that make weapons, tobacco, or oil," she says. "If these are things you don't support in your day-to-day life and you've committed the next 40 years of your money, that's not good."

Are They a Good Idea for Retirement?

"Stocks are a great retirement plan, but they shouldn't be your only one," White says. "Diversifying your assets is what it's all about and makes you less susceptible to losing tons of money. You'll never be able to totally eliminate risk, but you can lessen the blow by diversifying your investments across a few types." She says that finances are obviously individualized, but that younger investors can be slightly more adventurous.

"For someone in their 20s, investments could be more than one-half stocks and one-half assets (like bonds and CDs)," White says, noting that the remaining amount can go to anything from a savings account, to real estate, to tuition. "When time is on your side, you can be a little riskier," says White.

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