Alternative Investments
Why
Alternatives?
Alternative investments, often referred to as “alts,” include any investment that falls outside of traditional asset classes such as stocks, bonds, and cash. Private equity, real estate, hedge funds, and commodities are all examples of alternative investments. So are fine wines, art, and collectibles.
In recent years, alternatives have become more popular with investors, in part because they offer many potential benefits. Institutional investors have long understood those benefits, but in recent years, retail investors have begun to understand and embrace those benefits, too. Between 2003 and 2018, alternatives have doubled their global market share, increasing from 6% to 12% (CAIA, 2020).
How Alternative Investments Can Benefit Your Portfolio
Increase Diversification
Alternative investments provide investors with the opportunity to diversify their portfolios beyond traditional stock and bond investments. While traditional asset classes – such as stocks and bonds – can be subject to public market volatility, alternatives offer exposure to the underlying fundamental performance of different markets and asset classes, helping to manage risk and potentially improve overall portfolio performance.
Competitive Returns
Alternative investments have the potential to generate competitive and sometimes higher returns than traditional investments (Bank of America, 2022). Many alternative investments offer exposure to unique markets or investment strategies that may be difficult to replicate using traditional investments.
Inflation Protection
Many alternative investments, including real estate and commodities, have the potential to provide protection — also known as a hedge — against inflation. This is because these types of investments are often tied to physical assets that have the potential to appreciate in value over time. Check out our white paper on how multi-family property can provide a hedge against inflation.
Access to Unique Investment Opportunities
Alternative investments can provide access to unique investment opportunities that may not be available through traditional channels. For example, private equity investments may provide access to emerging companies or new technologies that are not yet available to the public. Similarly, hedge funds may offer exposure to sophisticated investment strategies that are not available to individual investors. Investors in private real estate funds can gain access to an investment vehicle which is valued based on the underlying performance of the real estate rather than public market sentiment.
Portfolio Customization
Investors can use alternative investments to customize a portfolio to meet specific investment goals or preferences. For example, they may choose to allocate a portion of their portfolio to real estate to provide diversification and inflation protection, while also complementing the traditional balanced portfolio.
Alternative investments offer a range of benefits to investors. While they may not be suitable for every investor, they can provide diversification, the potential for higher returns, inflation protection, access to unique investment opportunities, and portfolio customization, allowing the investor to align their portfolio with set investment objectives, risk tolerance all within a specific time horizon. If you are interested in exploring alternative investments further, be sure to consult with a qualified financial advisor to determine if they are appropriate for your individual circumstances and investment goals.
How Alternative Investments Can Benefit Your Portfolio
Increase Diversification
Alternative investments allow investors to diversify their portfolios. While traditional asset classes such as stocks and bonds can be subject to market volatility and may accrue or lose value at the same time, alternatives can offer exposure to different markets and asset classes, helping to mitigate risk and potentially improve overall portfolio performance.
Potential for Higher Returns
Alternative investments have the potential to generate higher returns than traditional investments [source this]. This is because many alternative investments are not subject to the same regulations as traditional investments, which can limit their potential returns. Additionally, many alternative investments offer exposure to unique markets or investment strategies that may be difficult to replicate using traditional investments.
Inflation Protection
Many alternative investments, such as real estate and commodities, can provide protection — also known as a hedge — against inflation. This is because these types of investments are often tied to physical assets that may appreciate in value over time. Check out our white paper on how multi-family property can provide a hedge against inflation.
Access to Unique Investment Opportunities
Alternative investments can provide access to unique investment opportunities that may not be available through traditional investment channels. For example, private equity investments may provide access to emerging companies or new technologies that are not yet available to the public. Similarly, hedge funds may offer exposure to sophisticated investment strategies that are not available to individual investors.
Portfolio Customization
Investors can use alternative investments to customize a portfolio to meet specific investment goals or preferences. For example, they may choose to allocate a portion of their portfolio to real estate to provide diversification and inflation protection, while also investing in hedge funds to potentially generate higher returns.
Alternative investments offer a range of benefits to investors. While they may not be suitable for every investor, they can provide diversification, potential for higher returns, inflation protection, access to unique investment opportunities, and portfolio customization. If you are interested in exploring alternative investments further, be sure to consult with a qualified financial advisor to determine if they are appropriate for your individual circumstances and investment goals.
Alternative Investment White Papers
Disclaimer: This commentary and the information contained herein are for educational and informational purposes only and do not constitute an offer to sell, or a solicitation of an offer to buy, any securities or related financial instruments. This article may contain forward-looking statements. Readers should refer to information contained on our website at https://avenuelivingam.com/forward-looking-statements for additional information regarding forward-looking statements and certain risks associated with them.
Ready to Explore Alts Further?
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