Exploring Alternative Investments
If we have learned anything these past few years, it’s that public equity and bond markets can be extremely volatile and with interest rates being so low for so long, it pushed many people into more risk on assets making their experience one heck of a roller coaster recently. With all of the turmoil in the public market space, “alternative investments” have been marketed more heavily now than ever. This can be a long journey to embark on but we are up for the task. In this initial piece we will start broad brush strokes and continue to deliver content that delves into each category to finely fill in the pieces.
Alternative Investments or Alts (industry lingo) refers to a broad category of non-traditional financial assets that are distinct from traditional investments like stocks and bonds that are priced out every day. Sometimes, these types of investments have low correlation with traditional markets and may provide diversification benefits to a portfolio. Some of the most common types of alternative investments include:
Private Equity – Investments in private companies or funds that invest in private companies. Investors can acquire ownership stakes in private businesses.
Hedge Funds – Investment funds that employ various strategies to generate returns for their investors. Hedge Funds often use leverage and can invest in a wider array of assets, including stocks, bonds, derivatives, and currencies.
Real Estate - Direct ownership of physical properties or investments in real estate investment trusts (REITs), which are companies that own, operate, or financial income-generating real estate.
Commodities - Investments in physical goods like gold, silver, oil, or agricultural products. Investors can gain exposure through commodity futures contracts or commodity-focused funds.
Venture Capital - Investments in early-stage companies with high growth potential. Venture capitalists provide funding to startups in exchange for equity.
Private Debt - Investments in non-public debt securities, including loans to private companies. This can include direct lending or investing in private debt funds.
Infrastructure Investments - Investments in physical infrastructure projects such as airports, toll roads, or utilities.
Art and collectibles - Investing in valuable art, antiques or other collectibles.
Cryptocurrencies - Digital or virtual currencies that use cryptography for security. Bitcoin and Ethereum are popular examples of such currencies.
Derivatives - Financial contracts whose value is derived from an underlying asset, index, or rate. The most commonly known examples are options and futures contracts. They require a higher level of expertise and due diligence on the part of the investors.
Alternatives can be generally considered riskier and less liquid than traditional investments. Sometimes they can provide overall portfolio diversification and the potential for higher returns, but they also come with increased complexity and volatility. Vetted due diligence and research are an absolute necessity when it comes to picking the right offerings for your portfolio. As with any investment investors need to assess their risk tolerance and goals before considering adding anything to their portfolio.