Choosing alternative investment options for your portfolio certainly isn’t a new concept, but what has changed is the types of investments that fall under the alternative umbrella. What used to be predominantly private equity and hedge funds has expanded into art, rare wine collections, and even cannabis, depending on the state.
But the most “traditional” of the alternative investment options, that also happens to be the highest yield producing remains real estate, and savvy wealth managers and entrepreneurs are poised to take advantage if they know where to look.
Here are three things every investor needs to know about alternative investments:
It pays to be patient
Inevitably, one of the first questions investors ask about is the main difference between traditional and alternative investments. The short answer: liquidity.
Traditional investments, such as publicly traded stocks, enable investors to take financial advantage of short-term windfalls in real time. A nice positive in the moment, but it dissuades the potential for even stronger growth over time.
If you prioritize long-term success over short-term gains, an alternative investment is probably your better option.
Avoid Wall Street volatility
Dodd Frank set the wheels in motion for a traditional lending environment where loans are harder to obtain. Add in COVID and the succeeding ramifications of a collapsing commercial real estate market and spiking interest rates, and you have a shaky Wall Street that’s tightening instead of investing.
Because of that, where private lenders were traditionally the lender of last resort, they’re now becoming a first resort for real estate investors and entrepreneurs looking for quicker capital to grow their business.
To those businesses, there’s no such thing as a “bad” real estate market – it’s a matter of where the opportunities exist.
It’s only going to grow
Baby Boomers allocated approximately 55% of their portfolio to traditional investments like traded stocks and equities. For millennials, that number is closer to 25%.
As this new generation looks to build personal wealth, more and more of them are looking to alternative investments – likely for reasons rooted in the Wall Street volatility that comprised their formative years. We can expect that it’s a trend that will only continue with future generations.
For more information on alternative investments and how they are viewed by the industries’ top wealth managers, watch the latest Inside Money podcast.