Financial assets that don’t fall under the umbrella of “traditional asset classes” such as stocks and bonds are called alternative investments. You may already be invested in alternative assets if you own rental income properties. As with all investments, there is risk involved. Here’s an overview of alternative investments.
During periods of market volatility, such as we are experiencing in 2022, many people find themselves thinking outside of the box.With massive losses for some stocks this year, it’s unsurprising that even inexperienced investors are wondering what other investment options exist.
Some of these options are alternative assets which may include tangible assets, commodities, real property, managed futures, and more.Specific types of alternative investments may consist of:
· Arts, Antiques
· Hedge Funds
· Natural Resources
· Private Equity Funds
· Real Estate
· Venture Capital Funds
All investments have some risk. It’s important to know that if you choose to invest in these assets, most will not likely trade on public markets. Before investing in an alternative investment, you should be sure you understand the risks instead of getting caught up in hypothetical rewards. Talking with a financial advisor before making any big decisions is wise.
There is no denying that adding these assets to your portfolio can allow you to diversify. Choosing alternative assets may be a fantastic investment strategy, while the markets perform sub-optimally. You also stand to earn potentially impressive returns. Here’s a look at the biggest potential benefits of investing in alternative assets.
· Allows you to diversify your portfolio
· Aren’t necessarily correlated to the stock market
· Hedge against inflation
· May be less impacted by market volatility
· May have lower transaction fees than traditional investments
Suppose you’re leaning towards taking a stab at some of these untraditional investments. In that case, you may have to assume significant risk first. If you’re leaning towards taking a stab at some of these untraditional investments, you may have to assume significant risk first.Some of the potential downsides of alternative investments may include:
· Elevated Fee Structure
· High Minimum Investments when compared to mutual funds, or EFTs
· Illiquid assets may be difficult to sell
· Less than ideal transparency
· Less Verifiable Published Performance Data
· May be more difficult to assign value
· May be riskier
· Extensive due diligence and research are necessary
· Some investments are only available to accredited investors
If you’re interested in learning more about whether investing in alternative assets may benefit you, schedule a consultation with Finley Davis today. Our experienced team can provide you with the information you need before choosing to invest. Finley Davis is a privately owned wealth management firm based in Eugene, OR. Founded by TJ Davis, ChFC®, Finley Davis has provided estate planning, financial planning, retirement planning, wealth management, and more since 2003. To schedule a consultation with Finley Davis, contact us today by calling 541-342-2224.
Investing in alternative assets involves higher risks than traditional investments and is suitable only for sophisticated investors. Alternative investments are often sold by prospectus that discloses all risks, fees, and expenses. They are not tax efficient and an investor should consult with his/her tax advisor prior to investing. Alternative investments have higher fees than traditional investments and they may also be highly leveraged and engage in speculative investment techniques, which can magnify the potential for investment loss orgain and should not be deemed a complete investment program. The value of the investment may fall as well as rise and investors may get back less than they invested. Please review the alternative investment piece I added which has comments for updates and additions on the piece.