Alternative Assets: Golden opportunities, or Fools Gold?

After covering index funds and individual stocks, it's time to look further up our risk pyramid at Alternative Assets.

⚡ Market Quick Hits

• Bitcoin Back: BTC hits new highs as institutional adoption accelerates.
• Share markets up... then down: After a rally with news of a possible China/US tariff deal the S&P 500 ended this week down 2.6% alongside drops in the Dow and Nasdaq reflecting continued uncertainty.
• Gold up almost 4% this week
  

🔍 This Issue's Key Messages:
Even if you don't invest in alternative investments, their price fluctuations can provide a short hand for where institutional money is putting their money.

Bitcoin isn't just for tech bros or a scam which will 'fade away soon'.

🥇 Gold: The Original Alternative Asset

What it is: Physical gold, gold ETFs, or gold mining stocks that give you exposure to precious metals

Why it matters: Gold has been a store of value for thousands of years. It tends to maintain purchasing power over long periods and often rises when currencies weaken or markets panic.

The case for gold:

• Central banks globally are buying gold at record levels
• Acts as insurance against currency debasement (remember our discussion about money printing?)
• Historically holds value during geopolitical uncertainty
• No counterparty risk - you own something tangible
• It is not JUST a store of value, but has intrinsic value in use both with jewellery and industrial use. (About 50% is held for investment)

The case against:

• Produces no income - you rely purely on price appreciation
• Average return year on year is 12% for the last five years
• Can be volatile in the short term
• Storage and insurance costs for physical gold
• May underperform during strong economic growth periods

How to invest: Gold ETFs (like those tracking the gold price) offer the easiest access without storage concerns. Physical gold coins or bars appeal to those wanting tangible assets.

₿ Bitcoin: Digital Gold or Digital Tulips?

What it is: The world's first and largest cryptocurrency - a decentralised digital currency that exists only electronically. Originating in 2009 as a reaction to the Global Financial Crisis of 2008 it aimed to create an alternative system to the traditional financial systems which had caused the crisis. Further Perplexity explainer here.

Why it's compelling: Bitcoin was designed as 'digital gold' - scarce (only 21 million will ever exist), portable, and outside government control. What started as a niche following has becoming increasingly accepted by institutions and corporations with more than a dozen ETFs granted in 2024, including those run by behemoths such as Blackrock and Grayscale.

Often seen as something 'just for tech bros or criminals' Bitcoin's use is spread across the globe particularly in countries with unstable economies where it has proved to be a lifeline for citizens wanting an escape from out of control inflation. It is also useful for those from developing nations who work abroad and need to send money home to their families as it negates the need for a third party intermediary such as Western Union which charges high fees.

For anyone who wants a quick 'take' on the 'Crypto is for criminals' narrative see my postscript.

The case for Bitcoin investment:

• 115% average growth year on year over the last 5 years. Outperforms any other asset.
• Bitcoin ETFs took in $10 billion in the first three days of trading, breaking the record set by gold, which took nearly three years to secure that amount.
• Fixed supply makes it potentially valuable as currencies are debased
• Can be easily transferred globally without traditional banking systems

The case against:

• Volatile - has large pullbacks, but these are softening as it becomes more established
• Still largely speculative - no income generation (although there are ways to borrow against it)
• Regulatory uncertainty in many countries

How to approach: Do your research. Start small, and if possible just put in a small weekly amount. Use reputable exchanges and understand the technology before investing. Get your AI of choice to be your 'Bitcoin coach' and then there are many great newsletters and Podcasts which explain the tech and its possible future value.
Newsletter recommendation - Lou's Crypto Chronicles

🏠 Other Alternative Assets

if investing in tangible assets is something which appeals, you might also consider:
Real Estate Investment Trusts (REITs): Own shares in property portfolios without buying physical property.
Commodities: Raw materials like oil, wheat, copper. Can provide inflation protection but are cyclical and can be volatile.

🎯 Where This Fits Your Journey

Remember our investment pyramid? Alternatives sit at the top - higher risk, potentially higher reward, smaller allocation. You should have your foundation solid (emergency fund, index funds, perhaps some individual stocks) before venturing here.

The beauty of today's investment landscape is that alternatives once reserved for the wealthy are now accessible through apps and ETFs. But with great access comes great responsibility, so understand what you're buying.

🔍 This Week's Learning

📱 Apps to Explore: Look into whether your investment platform offers gold or BTC ETFs.

📖 Deep Dive: Ask ChatGPT or Claude to explain the difference between owning physical gold vs gold ETFs, and the tax implications of each

Remember, alternative assets are called 'alternative' for a reason - they're different, often more complex, and require more research. But understanding them makes you a more complete investor – or even if you do not invest in them, they broaden your understanding of the different features of our economy.

Keep Looking Up, Sally

*A Brief Note on the 'Crypto is Just for Scammers' Narrative

Yes, Bitcoin and other cryptocurrencies are used for fraud - but so are pounds, dollars, and traditional banking systems. When Bernie Madoff ran his $65 billion Ponzi scheme, no one suggested we shut down the entire banking system. Yet when criminals use crypto exchanges, it somehow invalidates the whole technology rather than highlighting that bad actors will exploit any available system.

The data tells a different story: according to blockchain analysis firm Chainalysis, cryptocurrency-based crime represents less than 1% of all crypto activity, and traditional financial crime dwarfs crypto crime in absolute terms. The transparency of blockchain technology actually makes it easier to track illicit activity than cash transactions.

Like any powerful tool - from the internet to mobile phones - cryptocurrencies can be misused. But dismissing the entire system because of criminal misuse is like refusing to use email because of phishing scams.

Please note: Look Up is for information and educational purposes only and nothing written is intended to be financial advice. It is written by Sally with the help of Claude.