Here are 3 good questions to ask before considering such investments:
1) What are the risks involved?
This is obvious but unlike traditional investments which are regulated, there are no clear standards on the amount of disclosure required. Thus, as an investor, you do need to do your homework on what to ask and the most important questions must be questions related to risk.
2) What are the exit options?
If you want to withdraw from the investments, make sure that you are able to do so through proper legal documentation and not promises. Unclear exit or withdrawal process from the investments can be a clue as to how stable the investments really are.
3) Do you understand how the investment can generate the returns promised?
The golden rule (and I know there are many other “golden rules” out there) of investing is not to buy into anything you can’t understand. You may be an expert in enjoying fine wine but wine trading is a totally different business. When it comes to alternative investments, it’s not the asset class that matters but the business of generating returns from the asset class that counts.