Alternative Investments in the UK – Guide

Alternative Investments are non-traditional Investments that means these are Investments that are not bonds, stocks or cash. The most popular examples of alternative investments available in the UK are peer to peer lending, Bitcoins and Gold.

In this article we are gonna talk about the best alternative investments in the UK that you can buy right now, we will also cover the other important topics that are related to alternative investments. 

Make sure to stick with us until the very end of the article to know whether or not it is for you. 

What are alternative investments? 

Alternative investments are the investments that are made into assets and strategies which are not classified as bonds, stocks or cash. That means, it is a combination of strategies that are different from traditional ways of investing. It can take longer as well as short positions, allows you to apply leverage, allows you to hedge. Retail investors can access alternative investments via ETF and alt funds. 

Alternative investments are classified into two groups, tangible and intangible investments. 

Fine art, wine, stamps, antiques, precious metals fall into the category of tangible alternative investments whereas hedge funds, venture capital, private equity, derivatives, cryptocurrencies are classified as intangible alternative investments.

Key features of Alternative Investments

Alternative equity funds are far better than traditional equity funds in several ways. 

  1. Alternative investments allow investors to make a diversified investment portfolio. 
  1. Alternative investments are a bit complex. That means, to evaluate alternative investments you are required to have specific knowledge of what exactly these investments are. A better understanding can help you build a strong portfolio but half knowledge can make you lose everything.
  1. Alternative investments are less liquid when compared to traditional investments. Well, it does make sense too because of the absence of centralized markets and low demand for some of the assets.
  1. Most of the alternative investments offer high purchasing costs. Hedge funds are an exception as it requires a minimum investment amount.

Best Alternative Investments in the UK

Peer to Peer Lending

Peer to peer lending allows individuals to obtain loans directly for their startups from other individuals without approaching a middleman. Platforms like Zopa, Prosper and Lending Works arrange peer to peer lending agreements. All of these platforms are FCA regulated and only require £10 per loan. That means it allows you to diversify your portfolio in a better manner.

However, returns are not fixed as how much you can earn in this depends on the factors such as the credit rating of the borrower, length of the agreement and many more.

Real Estate Investments 

The very first thing that you should know to break the stereotype is that real estate investment is not only about investing in homes only, there are a lot of other options such as investment funds, SCPI (Shares of companies that manage real estate). Among all the investment platforms, real estate is the one to offer low volatility and is classified as an alternative investment class. However, accessing real estate is a bit challenging in the UK. To invest in real estate in the UK either you must have a 6 figure in your pocket or you have the guts to commit to a 35+ mortgage. And, even if you qualify in both of these options, it doesn’t allow you to make a diversified investment portfolio.

Gold- Luxurious Metal 

Gold is a well-reputed investment asset since traditional times. It is believed to be the most robust model of investment. In the early 1970s, one ounce of gold equalled $35 and now in 2021, it has surpassed $1700 per ounce. Traditionally, the only way to invest in this luxurious metal was to purchase it in its tangible form. However, that’s not the case anymore. Now with the changes in time rather than buying jewellery or coins, you can simply take ownership of the underlying assets through an online Broker. It has been classified as an alternative investment class and the easiest way to invest in it is by purchasing an ETF. By doing so, you don’t have to burden yourself with the thoughts of buying and storing it. SPDR Gold ETF is known to be the largest exchange-traded fund globally.

Gold price value for 30 years

Gold as an alternative investment class is favourable among UK investors as it is used to hedge against falling markets to mitigate the risk when the markets are somewhat bearish.

Bitcoin- the most dominating cryptocurrency

Cryptocurrencies are relatively a new phenomenon. These are the digital Currencies that as an investment are useful for both short and long term investors. And, the best alternative investment crypto is Bitcoin. It was introduced in 2009, and at that time it was started at less than $0.01 per coin and today at the time of writing this article it has surpassed over $47,000. That means, if you had invested $1 back in 2009, you would now be a multimillionaire and many have become so. However, the one thing to keep in mind is that an asset is highly productive only if it is highly risky. That means, Bitcoin is very speculative, and it is very natural for cryptocurrencies to rise or fall by 10% in a single day of trading. That’s why it is always advised to keep your Bitcoin stakes to a minimum. 

And, if you are planning to invest in this Bitcoin in the UK, then eToro is your go-to partner. It is regulated by the FCA and allows you to start investing in Bitcoin from just $25 and that too is free of Commission.

Fine Wine 

The older the wine is, the finer it tastes. That simply means that people who love wines are willing to pay more in the future for wines that age well. Fine wines are the attraction for those who enjoy the taste and class. Since 2013 the value of wine has risen sharply and in 2017 it has increased by over 20 %. All you are required is to have a better understanding and an advanced knowledge of wines. You can gain this knowledge from the historical reports that contain all the vital information from grape types to best growing seasons.

If you are willing to invest in wines then there are many apps available in the market that allow you to access the historical data on wines trading from around the world, with all the required key information. 

eToro Copy Trading

Trading requires years of experience and commitment. Therefore brokers have come up with copy trading to help beginners to make the most out of trading. It allows investors to copy positions to another investor’s account when they are opened or closed. This can be done manually or automatically and the decision of how to approach copy trading remains solely in the hands of the traders. eToro provides all the information that is needed for copy trading. The minimum amount required is $50 per copy trader. That means if you are depositing $12000, you would be able to build a diversified portfolio for 10 different traders.

Hedge Funds 

Hedge funds are also considered alternative investments. Hedge Funds in a way are like mutual funds but are a lot riskier. The only correlation between hedge funds and mutual funds is that both allow you to sell and purchase shares other than this both differ in several ways. Hedge funds allow you to invest in anything from real estate to cryptocurrencies. Hedge Funds ensures that returns are maximized and the risks are minimised, regardless of whether the market is going up or down.

Private Equity

As the name suggests, private equity consists of the capital that is invested in private companies. That means, it is not listed on a public exchange. Private equity is classified as an alternative investment. It is highly favoured by retail and institutional investors because it is highly liquid when compared to conventional financial mechanisms such as interest on bank loans and listing on public markets. Growth capital, Venture capital and Buyouts are subsets of Private equity. Private equity firms are good investments.

Crude Oil 

Oil along with gold is the single most important commodity globally. It is often called the lifeblood of the global economy even in a time when renewable energy is being adopted. However, it faced torrid times during the corona pandemic as the whole world was under lockdown so the demand for the supply was nearly minimal. The results were that the US oil futures went into the negative, the Brent Crude Index faced a fall of as low as $19 in April. And as of writing this article, the price has been tripled to $75.45 per barrel. After all, it is crude oil, one of the most demanded commodities globally, it had to return to its pre-pandemic level.

Crude oil price 2018-2021

If you are looking to access this alternative investment then eToro is your go-to partner. It is Commission free and allows you to trade Oil CFDs or you can buy oil shares. 

Silver

Silver as an investment, sounds awkward? 

You will be amazed to know that silver is leading its way at present over gold. The value of silver has increased over 100 % from March to October last year. That means it had doubled only in less than 7 months. To invest in this alternative investment class you are not required to hold and store the asset. Instead, all you are ready to do is to invest via an ETF. And, you can do this on iShares Silver Trust. 

How to choose the Best Alternative Investment for You 

Before you jump straight into buying alternative investment assets, you are advised to consider the metrics that are mentioned below.

Level of Risk

Every investment carries risks to some extent and it varies from asset to asset. Those who have a small appetite for risk prefer investing in blue-chip stocks and high-grade bonds and those who have a big appetite for risk opt for an alternative investment like Bitcoin or leverage loans. Of Course, you may enjoy higher returns on your investments but there are chances that you may lose everything you have invested. So before you make any such investment it is better to know how much risk is involved in it and are you comfortable with that amount of risk? If not, then you should drop the idea of investing in alternative investments. 

Level of Returns

Well, it is very hard or nearly impossible to predict the future but when investing you must not do it blindly.  You at least should have an idea of what you are doing and what returns you are gonna make in the coming future. As discussed above, predicting is nearly impossible but you can, however, do so by analyzing the historical ups and downs of the returns of the assets. For example, the S&P 500 index has returned an average of 10 % annually since 1926. So before you dive into alternative investments you are advised to look at the historical data. 

Where can you invest?

If you wish to invest in luxurious metals like gold and silver then the best way to do so is through an ETF. Similarly, if you wish to Invest in oil you better be investing in relevant stocks. Simply put, before you choose an alternative investment asset, first make sure that it is available online in the UK market. You also need to ask yourself whether you can invest in your desired asset.

Best brokers to buy alternative investments in the UK

There are hundreds of brokerages in the market, but it is very difficult and challenging to find the brokerage that is suitable for you and fits your financial goals perfectly. It requires ample time to analyze and look at the key metrics like fees, commissions, investment assets, regulations, for every platform. 

Therefore to save your time and energy we have listed down the best brokerage platforms that you may consider for making alternative investments in the UK.

eToro- world’s finest broker 

eToro- best trading platform for alternative investments in the UK

eToro is the world’s finest broker that allows you to access alternative investments. This platform is packed with all the amazing qualities on which we measure the best brokerage platform. It is the most favourite trading broker in the UK for several reasons. However, the very first reason that attracts thousands of traders towards it is that it offers a variety of assets including the best alternative investments commission-free. Except you will be required to pay a 0.5% fee on all your deposits and $5 on every withdrawal. It is the cheapest brokerage platform in the UK.

For beginners, eToro provides the copy trading feature. This feature allows you to copy ongoing trades of expert traders. You can also use the copy portfolio feature, which allows you to diversify your investment portfolio. Unlike other platforms, account creation on this platform is not time-consuming. It takes only a few minutes to create an account on eToro. Once you are done with creating an account you are then required to fund it to start your trading journey. For the convenience of its user’s, it accepts various payment methods for making a deposit such as Debit/Credit Card, Bank account, e-wallet e.t.c. The platform also offers a mobile application for the convenience of its customers.

Pros

  • Beginner-friendly 
  • Gives access to a variety of alternative investments 
  • Allow you to buy stocks without paying any commission 
  • Allow You to trade CFDs in the form of stock
  • Regulated by the FCA 
  • Offers 150+ ETFs
  • Offers a variety of payment methods 

Cons

  • Not for experienced investors

Plus 500- Commission-free trading platform

Plus 500- online trading broker for alternative investments in the UK

Another brokerage platform that we have on our list is 500, it gives you access to alternative investments such as emerging market stocks, cannabis shares, exotic currencies in the form of CFDs. Moreover, it allows you to apply the leverage of up to 1:30. That means if you have $100 in your trading account then you would be able to trade a value of $300. 

The platform is regulated by the FCA.

Hence it makes sure that all of its traders’ funds are not compromised at all. Its parent company is listed on the London Stock Exchange. The account creation on this platform is not time-consuming. All you are required to do is to enter your few basic details, undergo a verification process, make a deposit and that’s all. To deposit on this platform you can either use debit/credit cards, bank transfers or PayPal. 

Pros

  • Regulated by the FCA
  • Access to a wide range of investment assets 
  • Leverage of up to 1:5 for retail customers
  • Easy and fast account creation
  • Offers short selling 

Cons

  • CFDs only 
  • Not beginners-friendly

IG- Trusted UK Broker

IG- online trading platform for alternative investments in the UK

Another amazing broker that offers a variety of assets including alternative investment assets, international stocks, ETFs, mutual funds and many more is IG. It is regulated by FCA, which means you don’t have to worry about the safety and security of your funds. The platform gives you access to over 12,000 assets. It also allows you to access cryptocurrency markets, apply leverage and engage in short-selling. This trading platform is highly suitable for those looking forward to making long term investments through stocks and shares ISA. 

The account creation on this trading platform is also super easy. However, you do need to pay an entry-level fee of £8. But the good thing is that if you trade regularly then this entry-level fee will be reduced to £3. Once created an account you will be required to make a minimum deposit of $250 on this platform to initiate trading. This minimum deposit isn’t the fee of this platform but the working capital that is needed by the investors to start investing journey.

Pros

  • Well reputed UK Broker 
  • Offers more than 12,000 traditional assets
  • Offers leverage and short selling
  • Offers spread betting and CFD products
  • Offers educational tools 

Cons

  • $15 commission on US stocks 
  • $250 minimum deposit amount

How to Buy Alternative Investments in the UK- Step by Step guide

Here, we are taking eToro as an example to make you understand the whole procedure of buying alternative investments in a super quick way.  eToro is our most favourite trading platform because it is commission-free, beginner-friendly and allows you to diversify your portfolio.

Step 1: Open an account 

The very first thing to start creating an account is to register yourself on its official website. To do so, you are required to fill in a registration form that you can easily find on its official website. In this registration form, you will be required to enter a few of your details such as your name, email, phone number and also required to set a strong password. After entering all of your details make sure to accept terms and conditions. 

eToro step1- create an account

eToro will ask you to verify your identity by uploading some of your documents, don’t worry as your documents are truly safe on this platform. However, you don’t need to undergo verification until you deposit more than $2,250 or you request a withdrawal. 

Step 2: Fund your account 

Now that you have successfully registered on this platform you are now all set to fund your account by making a minimum deposit of $50. This funding amount isn’t the fee of the robot but the working capital that is needed by the traders to execute trades. eToro offers several payment methods for the convenience of its traders, you can choose whatever method you feel more comfortable with. The payment methods supported by eToro are Debit/Credit Card, PayPal, Skrill, Nettler, and Bank Transfer. 

Step 3: Buy Alternative Investment

Now that you have successfully funded your account, you are then required to select your desired alternative investment. For example, suppose you are buying cryptocurrency Bitcoin, then simply enter the name Bitcoin in the search box at the top of the page. After selecting it, enter the amount you wish to invest, click on the ‘Open Trade’ button. 

Conclusion 

From all the depth in research on alternative investments, we have concluded that alternative investments are worth taking a chance. Firstly because they offer high returns, well not to forget it is because alternative investments are highly risky. And, secondly, because these investments offer incredible ways to hedge against traditional stock and bond markets. 

If you are willing to start investing in this risky yet productive investment class in the UK, then we highly recommend you to get started with the world’s finest trading platform eToro. As it gives you access to a variety of asset classes without changing any commission and because the account is super beginner-friendly.

FAQs

  1. What are the alternative investments? 

Alternative investments are the investment that is made into assets and strategies which are not classified as bonds, stocks or cash

  1. What are the best alternative investments in the UK?

There are a variety of alternative investments that fit into the “best” criteria. However, the one which is the best for you depends on your financial goals and risk appetite. Therefore, the “best” varies from trader to trader. Anyhow, peer to peer lending, real estate and Bitcoin are few examples of the most popular alternative investment assets. 

  1. Where can I buy alternative investments in the UK? 

There are hundreds of platforms that allow you to access alternative investments. However, to our knowledge, the above-mentioned platforms, eToro, Plus 500 and IG are the best platforms from which you can buy alternative investments.

  1. Are alternative investments risky in the UK?

Every investment carries a risk to some extent. There is no such investment that is not risky, some carry low risk and some carry high risk. And, if we talk about alternative investments then yes it carries a much higher risk.

  1. Are ETFs considered alternative investments in the UK? 

ETFs are traded on a public exchange just like shares. Hence, these are not considered alternative investments. However, you can invest in alternative investments such as gold and silver through an ETF.