Alternative Investment

Should You Diversify Your Portfolio With Alternative Investments

It has been a tumultuous year for the stock market. People relying on traditional investments have experienced startling changes in their portfolios and been left hoping that they will rebound from some major losses.

However, others have lost some trust in the typical methods and instead become interested in alternative investments. The financial magazine Barron’s had some good insight on the topic, including the risks of alternative investments.

Their article is actually cautionary about pursuing some alternative options, such liquid alts. Andrew Beer is a portfolio manager and the founder of Dynamic Beta Investments. He does not mince words, proclaiming that liquid alts “have no diversification benefits.” This is due to a decade long history of the average liquid alt only having an annualized return of 1.7%

Then there are private alts, which can see bigger returns, but also have major gatekeeping surrounding them. Many require you to be an accredited investor, which means you need to have an annual income over $200,000 or a net worth exceeding $1 million. That naturally eliminates a significant number of investors from even considering private options.

One popular alternative investment option is real estate. More people are buying property with the set purpose of either renting it out and being a landlord for the property, or fixing it up and selling it for a profit. Though the drawback there is the consideration of how much more time and effort it will take on your part as opposed to other investment options that allow more passivity on your end.

Fred Hubler, CEO and Chief Wealth Strategist for Creative Capital Wealth Management Group which offers retainer-based advice and access to accredited investments for clients in 27 states also believes alternative investments are a required element of any diversified portfolio.

“I bet the farm on it,” jokes Hubler. “When I created this company 20 years ago next year, I used the portfolio allocation of the largest foundations and institutions as my roadmap. Those foundations and institutions had (and still have) most of their investments not in the market. So we just research ways for our clients to get the same or similar exposure to non-market investments. Most alternatives have lock ups and little liquidity, but most also are not exposed to the risk of the public stock or bond market and when things get rough there. It’s good to have a part of your portfolio not exposed.”

When speaking with a financial consultant about your decision, it helps to go in knowing what it is you want your new investment to achieve. What they suggest will vary depending on whether you want income, investment gains, or simply diversification. You also need to take an objective look at your own profile. Your age, your current savings, and how long you are looking to stick with an investment all influence matters as well.

The key to going into any new investment is to have concrete criteria on your end to narrow your focus. You don’t want just anything that will be an alternative to stocks, you want something that meets your specific needs.

There are many kinds of alternative investments, each with pros and cons. Learn more about them in the article from Barron’s here.

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Fred Hubler

Want to know if you’re on the right path financially? CCWMG’S Second Opinion Service (SOS) is a no-obligation review with one of  Creative Capital Wealth Management Group‘s Wealth Strategists. 

It’s simply not possible to get a reliable second opinion from the same person who gave you the first one. Click here to schedule an SOS meeting with Fred and his team.

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