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How do I evaluate the performance of alternative investments?

Evaluating the performance of alternative investments can be a bit more challenging than assessing traditional investments like stocks or bonds. However, there are several approaches to help you gauge the performance of your alternative assets. Here are some general steps:

  1. Understand the asset class: Familiarize yourself with the specific alternative investment type, its characteristics, and the factors that drive its performance. Be aware that each asset class has unique risks, rewards, and market dynamics.

  2. Set benchmarks: Establish appropriate benchmarks for each alternative investment to compare their performance against relevant market indices, industry averages, or other assets within the same category. Keep in mind that some alternative investments, such as collectibles or private equity, may not have readily available benchmarks.

  3. Consider risk-adjusted returns: Evaluate the investment's performance concerning the risk taken to achieve those returns. Metrics like the Sharpe Ratio can help you compare risk-adjusted returns across different investments.

  4. Diversification benefits: Assess the extent to which the alternative investment diversifies your overall portfolio. A well-diversified portfolio can reduce risk and enhance long-term returns.

  5. Monitor investment-specific factors: Track factors specific to the alternative investment, such as changes in management, underlying assets, or market conditions that may impact its performance.

  6. Review historical performance: Although past performance is not necessarily indicative of future results, analyzing historical performance can provide insights into the investment's behavior during various market conditions.

  7. Seek expert advice: Consult with financial advisors, analysts, or other professionals with expertise in alternative investments to help you evaluate the performance and suitability of these assets for your portfolio.

Remember that evaluating alternative investments may require more effort and research than traditional investments due to their unique nature and often lower liquidity. Always consider your financial goals, risk tolerance, and investment horizon when evaluating the performance of any investment.

About the author

Andrew Newby

Andrew is a passionate entrepreneur and experienced tech strategist with a deep love for the Bourbon industry. As the CEO of The Bourbon Reserve, he leads the charge in navigating the exciting world of Bourbon investments. Andrew's entrepreneurial spirit extends to co-founding The Toledo Spirits Co. and HEAVY Beer Co., where he has played an instrumental role in their growth and success. Alongside his ventures in the spirits industry, Andrew boasts a strong background in software product development, making him a versatile leader in both the Bourbon and tech worlds.