Recent years have witnessed the mainstreaming of alternative investments for certain accredited investors. In fact, one study found that alternative investments are expected to grow $8 trillion between 2022 and 2028.
The reason why many people choose to leverage alternative investments like real estate, cryptocurrency and other options is because they offer investors the opportunity to diversity their portfolio, reducing their overall risk.
"Alternative investments" is an umbrella term for a range of investment strategies and assets that use a different approach from traditional investment options, such as stocks, bonds, and mutual funds.
While today’s portfolios may benefit from some diversification to alternative investments, it should be emphasized that the risk, return and market correlations vary. We highly recommend you start by considering your objectives for adding an alternative investment and select the right strategy to pursue those needs.
There's no doubt that having an investment strategy can help you achieve long term financial goals, such as retirement. Another important financial action is paying taxes! If you want to get ahead of your taxes this year, it might be worth taking a look at the 2024 tax brackets and deductions.
Types of Alternative Investments
Art and Collectibles — Often art, sports and entertainment memorabilia, high-end watches and other collectibles can develop worth over time as the artist, movie star or athlete become more historic.
Real Estate and Farmland — Investors can turn to physical properties or farmland as an alternative investment.
Private Equity — Also called venture capital, private equity investments seek to participate in the growth of private companies. Private equity is an illiquid asset class that seeks long-term appreciation away from public markets.
Hedge Funds — Investments that have broad flexibility in the types of training strategies they can employ to follow their stated investment goals.
Commodities — Agricultural products or raw materials like gold, silver and oil. These items are in perpetual demand since they are non-renewable resources.
Commodity Pools — Enterprises that attract funds from people who are looking for the pool managers to engage in commodity-related trades.
Cryptocurrencies — A new form of digital currency that came to life in 2009. This investment will not limit your financial risk, but it may offer passive income or capital appreciation (which is a popular reason to invest).
Are Alternative Investments Right For Me?
Pros:
- Higher return potential
- Diversifies portfolio
- May protect you against inflation
- Often illiquid, a good long-term investment
Cons:
- Limited accessibility
- Higher management and performance fees
- Often illiquid, not easily turned into cash
- Difficult to research market trends or historical pricing
- Less regulatory oversight and higher risk for fraud
- Complex and risky, not beginner friendly
Remember, due to the nature of these investments, alternative investments usually have high minimum investment requirements - making them geared toward "accredited" or "qualified" investors with higher networths. To make this option more available, some investment companies have structured mutual funds after alternative investments. This gives people access to the strategy while offering daily liquidity at lower minimum investment requirements.
Disclosures
This article is intended to be a general resource only and is not intended to be nor does it constitute legal advice. Any recommendations are based on opinion only. Rates, terms and conditions are subject to change and may vary based on creditworthiness, qualifications, and collateral conditions. All loans subject to approval.
Mutual funds are sold by prospectus. Please consider the charges, risks, expenses, and investment objectives carefully before investing. A prospectus containing this and other information about the investment company can be obtained from your financial professional. Read it carefully before you invest or send money.
Alternative investments are not without their risks. They often have higher fees, which can reduce total returns. They are also complicated and less transparent investments. Alternative investments are less liquid assets and may not serve to reduce risk in extreme down markets.
This site is published for residents of the United States and is for informational purposes only and does not constitute an offer to sell or a solicitation of an offer to buy any security or product that may be referenced herein. Persons mentioned on this website may only offer services and transact business and/or respond to inquiries in states or jurisdictions in which they have been properly registered or are exempt from registration. Not all products and services referenced on this site are available in every state, jurisdiction or from every person listed.
Investment advisory services offered through PFG Advisors, LLC, a SEC registered investment adviser. Securities offered through Osaic Wealth, Inc., member FINRA/SIPC. Insurance products offered through approved carriers. Copper State Credit Union, PFG Advisors, LLC, and Osaic Wealth, Inc. are separately owned entities and are not affiliated companies.
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