How to Spot Red Flags Before Investing in Alternative Assets

Alternative investments are a hot topic right now, and for good reason. Making a financial portfolio more diverse and robust matters now more than ever because of the tumultuous state of the global economy, and for many, alternative assets hold the answer.

While we’re certainly not going to contest this point, we do know that we need to educate our audience on the red flags to look out for. 

Keep reading, and we’ll guide you through the basics in a simple, actionable way that you will be able to apply for years to come.

Make sure your passion doesn’t run away with itself  

Scams are often created so that they can get you to act with your heart, not your head. If you are passionate about a particular asset or market, you may well feel a greater level of trust towards it, whether or not that is actually merited.

Feeling like you know and understand something because you enjoy being a part of it is not the same as actually doing a deep dive into the risk profile of the potential investment.

If you find that an investment business is really playing into your passion and coming up short when it comes to data and answers, this is a clear red flag. Yes, they are running a business and need to be able to attract a funnel of new clients, but no reputable business will be doing this at the expense of the clients.

Look for transparency, data, and simple explanations 

Let’s imagine that you have a passion for cask whisky and that you want to make an investment as part of your plans to diversify your portfolio. As with any other type of investment, you need to make sure that you understand the fee structure, that you have proof of ownership of the asset (this will take the form of a Delivery Order in this case), and you will want to see some historical data as a guide. If any of these are not forthcoming, this should register as an immediate red flag.

“Cask whisky is an exciting and unique asset, but as with everything, it’s important to go with your eyes fully open,” says Alphie Valentine, Co-founder of Hackstons, established whisky specialists who provide opportunities for both investment and consumption. The point here is that an established, reputable business will think nothing of answering your follow-up questions, so never be afraid to dig deeper.

Consider where you first heard about the offer

Finding a one-in-a-million offer in your email junk folder and clicking on the link is not something that is ever likely to happen, no matter how much you want it to. If you heard about the offer via a cold approach or something that just doesn’t feel like the way an established business would operate, always leave the deal on the table and don’t turn back.

Always walk away from guaranteed returns

There is no such thing as a guaranteed return, regardless of how cleverly someone attempts to dress the offer up with marketing spin and fancy content. If a clear discussion of the risks and potential downsides is not being offered by the provider, this is the biggest red flag that there is something wrong. There will always be a legitimate offer out there waiting to be assessed, so don’t fall into the trap of thinking that you have to act right now, especially when you start to sense that something isn’t quite right.

Search for an established online presence early on

Take a look at Hackstons on Trustpilot, and you’ll see that they have a stellar reputation for transparency and fairness. The point here is that you can trust that they are a business that will do what they say, and they have the presence online to point to consistent past performance. If the online footprint is nonexistent, this is a sign that you are either dealing with a scam or a brand-new startup. The former should clearly be avoided, and the latter may not have the experience and expertise you need.

The last word

The world of alternative assets has plenty of opportunities that you can make the most of, but it’s also one that scammers have noticed they can use to their advantage. By making sure that you can spot the red flags and ask the commonsense questions, you can protect yourself the smart way. It’s not about delaying taking action and risking missing out on the next big thing, but it is about performing your due diligence in a way that will help to safeguard your financial future.