What Are the Pros and Cons of Alternative Asset Investments?
The first things people usually think about when it comes to investing are stocks, bonds, and cash. With the stock market in bear market territory (which is defined as a loss of at least 20% from recent highs), bond prices falling, and the Canadian dollar tumbling compared to the U.S. greenback, many investors are sitting on the sidelines.
But they don’t need to. There is more to investing than stocks and bonds. Those looking to still stay invested should consider alternative assets (or alternative investments). They’re different from traditional investments because that they aren’t as easily sold or converted into cash as stocks or bonds.
What Are Alternative Assets?
There are a wide number of alternative assets investors can consider if they’re looking to boost their lagging returns, generate income, and provide portfolio diversification. Below are some examples of alternative asset investments an independent retirement advisor can help you with.
Private Equity refers to investing in companies that are private. Private equity investing provides capital and expertise to companies that are in various stages of growth from start-ups and early-stage ventures (venture capital) to more mature companies looking to expand or restructure (growth capital) to buyouts.
Private Debt investors lend money directly to businesses that are not financed by banks. “Private” refers to the lender not the company. Both publicly traded and privately held companies access capital through private debt. A financial planning and wealth management advisor can help provide information if you’re interested in private debt investments.
Real Estate is a diversified way to invest. After all, there’s more to real estate than houses. Popular alternative real estate assets include land, timberland, farmland, office space, apartment blocks, commercial buildings, toll bridges, and even airports.
Commodities are a popular asset class an investment advisor can assist you with. Commodities are also real assets but mostly align with natural resources, such as oil and gas, agriculture products, industrial metals, and precious metals.
Collectibles have become a popular way to invest and can include items such as fine art, rare books, vintage cars, stamps, coins, antiques, rare wines, and baseball cards.
Structured Products are a convenient way for investors to access alternative assets. Structured products typically involve fixed income securities, which are assets that pay interest, like government or corporate bonds. Derivatives and securities backed by an underlying asset or group of assets like stocks, bonds, or market indices are also structured products.
What Are Some Pros and Cons of Investing in Alternative Assets?
As any financial planning and wealth management professional will tell you, there are benefits and drawbacks to any kind of investing. This includes alternative assets.
PROs
Low correlation with the stock market which leads to less volatility
Could experience significant, market trouncing returns
Great way to diversify a portfolio
Using an experienced portfolio manager can give you an edge
CONs
Some alternative assets require high minimum investments, which can be in the millions of dollars. They can also carry higher fees.
Because of regulations, it can be difficult for retail investors to access some alternative opportunities
Alternative asset investments tend to be private, not public, and are usually illiquid, so it could be difficult to exit an investment or it could take years to redeem your capital
Alternative investments can include complex instruments that require a higher level of expertise or due diligence.
Sharp Asset Management for Your Retirement Planning
Alternative assets can provide investors with a range of options outside more traditional routes, such as stocks and bonds, to diversify and growth their retirement portfolios. Those interested in pursuing alternative investments should consider using an experienced retirement and investing advisor that understands your long-term goals and which asset classes are best suited for, and most interesting to you.
Sharp Asset Management is an independent portfolio management firm that is 100% owner-operated. We are not affiliated with any financial institution, securities firm, or mutual fund company. Nor do we earn any commissions or fees on investments we choose for our clients. That means our team of wealth management professionals is focused exclusively on helping you achieve your unique, long-term investing objectives. To learn more about investing with Sharp Asset Management, contact us today.
