Alternative investments part 2 – The advantages and disadvantages of alternative investments

Alternative assets tend to have some characteristics in
common. Compared to conventional assets, they have four major advantages:


The potential
for much higher returns

Returns in
the share market are typically around 5% to 8% a year over the long term.
Alternative investments aim to provide far higher returns.


less correlated to the share market

traditional assets tend to gain or lose value in line with the share market,
alternatives move more independently.


diverse types of investments

investments are a way to own interesting assets that are not always available
on the share market, and potentially be more hands-on with choosing and
managing them.


Ideal for
providing portfolio diversification

Their low
market correlation and higher returns make alternatives a way to add
diversification to a well-balanced investment portfolio.

However, alternative assets also have some disadvantages, typically


higher risk

With higher
potential rewards come higher risks, and alternatives are overall more risky
than traditional assets.



lower liquidity

In many cases
alternative assets cannot be rapidly liquidated and investors may be tied in
for a certain period.

Not always
available to all investors

alternative investments are limited to institutional investors or high net
worth individuals.


These pros and cons will vary depending on each individual investment, so anyone considering investing in alternatives will need to weigh
up these factors carefully each time. This is an area where a financial advisor can be valuable, as they can do the research and help investors understand why and how a particular alternative asset could fit into their specific portfolio.

Zagga’s advantages compared to riskier
alternative assets

Zagga provides direct private debt investment secured by physical properties. It has some of the typical advantages and disadvantages of
other types of alternative assets, including:

  • Higher returns than traditional fixed income investments – current[1] annual returns for Zagga investors are between 8% and 10%.
  • A higher risk profile when compared to traditional investments like bonds and cash, due to reliance on borrowers.
  • Loan performance is not correlated with share market performance.
  • Loans have lower potential liquidity than conventional investments as funds are committed for the term of a loan.
    However, Zagga’s loans can be sold on their secondary market to other

However, Zagga differs from riskier alternative investments in a few key ways:

  • Zagga is regulated by the Financial Markets Authority. It has held a peer-to-peer lending licence since 2015 and is a
    registered member of Financial Services Complaints Limited, as is its trust company.
  • Zagga’s loan investments are all secured by first ranking mortgages over the borrowers’ residential or commercial property.
  • Loans are not limited to institutional investors
    or high net worth individuals. Any person, company or trust that has been identity verified and holds a New Zealand bank account can access this investment.
  • Investors can choose individual loans, which allows them to tailor their selections to fit their risk profile and diversify by location and project type.  Loans are not pooled, meaning no contagion risk across loans.

Because Zagga loans pay a regular return to investors, this also sets them apart from speculative alternative investments such as cryptocurrency. Rather than hoping for the value of an asset to rise and then selling it, a Zagga loan provides a reliable income stream throughout the term
of the loan.



[1] Annual
returns as at January 2024. 

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