Alternative investments: Separating fact from fiction

Have you heard of alternative investments (ALTs)?

Learn about alternative investments
Alternative investments

They are nothing more than alternatives to the standard asset classes of stocks and bonds.

 

Why consider ALTs?

  • Diversification – Many provide returns that are uncorrelated to stocks and bonds.
  • Attractive potential returns – Many have the potential to provide returns in excess of historical returns of stocks and bonds.

 

Why haven’t I heard of ALTs before?

Most brokers and financial advisors are prohibited from offering alternative investments to you. As a result, they are not made aware of them by their management.

Below is some of the fiction you may hear from those who are not as familiar with alternative investments as they should be. I have included the facts.

 

Fiction: You must be a high-net-worth individual or a hedge fund to participate in ALTs.

Fact: Depending upon the ALT, there can be some minimum liquid net worth requirements ($250,000 for some, $1,000,000 for others), but not always.  Many times, an annual income of $200,000+ will allow you to participate regardless of your liquid net worth.  Please check the individual ALT for its requirements.

Fiction: Your money is tied up for a long time if you invest in ALTs.

Fact: Each ALT has its own liquidity features. Some ALTs provide daily access to cash. Others can restrict access to cash for years or when some event occurs. That is why it is important to understand an ALT before allocating funds to it.

Fiction: All ALTs are volatile.

Fact: While some ALTs can be volatile, many experience far less volatility than the stock market and, more importantly, any of the ALT’s volatility is normally not correlated with the stock market.

Fiction: ALTs failed to protect your capital during the financial crisis of 2008.

Fact: Many ALTs saw no drop in value during the financial crisis of 2008 because they were completely non-correlated with the stock market.

 

Alternative investments come in many shapes and sizes. Make sure you do your homework and understand the ALT your are considering before proceeding.

"Education is the key to making informed financial decisions." -- Elliot Goldberg, Independent Registered Investment Advisor (610) 999-3599
“Education is the key to making informed financial decisions.” — Elliot Goldberg

To learn more about ALTs, please click here to view a replay of my webinar, “What Every Investor Needs To Know About Alternative Asset Classes.  or call me at (610) 999-3599.

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