In a world where returns from traditional asset classes are under pressure, many investors are turning to alternative investments to boost the performance of their portfolio. Many of the alternative solutions possess characteristics that address investors’ investing concerns, such as high costs, liquidity, transparency, and many of the challenges associated with traditional investments. Moreover, investments such as certificates of deposit and fixed annuities offer a degree of safety, but pay investors very little in returns.
All investments have a certain amount of risk, but alternative investments help to lessen the volatility and could provide a steady or even significantly increased cash flow in a well-structured portfolio. Alternative investments are investments that represent a style of investing that is intended to protect wealth in the event of extreme volatility, or a financial crisis. A study conducted by Informa Investment Solutions and published by BlackRock reveals that many alternative investments did provide protection over stocks during the 2001 and 2008 recessions, because they did not fall as much as equities did. In the event that the stock market should experience a correction in 2017, investing your money in some hard asset classes – along with traditional stock market investments, can help reduce the damage to your overall portfolio.
Most alternative investments were originally designed for the 1%. But, now alternative investments are being offered to mainstream investors. One reason is that alternatives are touted as investments that hint at potential higher overall returns on investment. This is critically important, especially to retirees trying to supplement retirement income of traditional investments like dividends and 1% interest savings accounts.
Many advisers recommend allocating between 20% and 25% of your portfolio to private or alternative investments. The rest should go into traditional stocks, bonds and cash. Different types of fund managers make alternatives convenient and accessible, and they are usually managed by experts other than your adviser – someone who specializes in a particular type of alternative investment, such as Pacific Tycoon and shipping containers.
It is true you do not need to be super-rich anymore to join the alternatives club, but you should be affluent enough to afford to invest this manner. Most wealth managers will not recommend this strategy unless investors meet a certain minimum amount of total investable assets, typically around $2 million to $3 million. Furthermore, investing in alternatives typically means holding on to them for a longer period of time; often five years or more. This timeline is not popular with all investors.