Alternative investments have less correlation to the economy. These assets can outperform stocks in bullish and bearish markets, but tracking them can get difficult. You can buy stocks in a brokerage account and monitor your investments in a single account, but alternative assets are a bit more complicated. You can buy art, real estate, private equity, short-term notes, and other alternative investments. Want an easier way to keep track of these investments and grow your capital? We share how you can use one portfolio to invest in multiple alternative asset classes.
What Are Alternative Assets?
Alternative assets are investments that do not trade on public markets. An asset that is not a stock or bond qualifies as an alternative investment. Real estate and crypto are two of the most well-known alternative assets, but this branch of investing is diverse. You will find assets like collectibles and wine in this sector.
Why Invest in Alternative Assets?
Alternative asset valuations often do not move in tandem with the stock market. This disconnect can help you withstand a market correction, and some of these assets may outperform stocks during bullish markets as well. They might also have less volatility since the prices of some types of alternative assets don’t change continually, and they can provide a stable source of passive income. The yields also tend to be higher, as an alternative asset investor can receive a 10% yield for their capital. These desirable traits may make sense for many portfolios. BlackRock currently recommends that investors allocate 20% of their portfolios to alternative assets.
How to Use One Portfolio for Your Alternative Investments
Real estate, artwork, wine, and other alternative assets get difficult to track. You may need to put these investments in a spreadsheet if you buy individual assets. However, one reliable way is to use a single portfolio to track your investments and get good returns.
Alternative investment funds let you allocate capital toward a pool of alternative investments. Other funds invest in alternative assets like real estate, private equity and art, on your behalf and monitor them. These professionals also make it easier for retail investors to enter the space. You don’t need to manage storage or accumulate a lot of capital for a commercial property down payment.
What to Consider Before Investing in Alternative Assets
Alternative investments can strengthen your portfolio and provide enough diversification to navigate market downturns. However, you don’t want to rush into an investment, no matter how promising it may seem at first glance. We will discuss the key factors to consider below.
You can enter these types of funds for a $2,500 minimum investment on platforms. While this investment is more than what you would pay to open a mutual fund, these minimums are more accessible than the down payments you would need to obtain these assets on your own.
Asset liquidity is an important point to consider when looking at alternative investments. These assets are not as liquid as stocks and can take years to sell in the market. Some alternative investment funds hold onto their assets for an extended amount of time. Many alternative investments provide cash flow while you wait, but some of these assets only provide payouts upon the final sale. While short-term notes have liquidity within a year, other alternative assets can remain illiquid for multiple years. You should consider how long you can live without this capital and check the yield before making an investment.
Even though someone else will manage the alternative assets and can provide returns to shareholders, you should still stick with what you know. Investors can expand their horizons and research new asset classes, but you should enter new assets with smaller initial investments. Buying what you know helps you identify ideal opportunities that align with your objectives. You will also feel more confident when you give your capital to an alternative investment fund.
Alternative investment funds provide additional details about the positions in their portfolio. If you buy a multifamily real estate fund, you can find more details about the properties and their locations. Alternative investment companies also list their objectives for each fund, so investors know immediate plans and the long-term vision. It’s important to remember that returns are not guaranteed. Understanding the fund’s investment methodology will give you a better understanding of the asset’s reliability.
Alternative investment funds usually have higher fees than mutual funds. Although you get a professional investment manager monitoring promising assets on your behalf, that fee can minimize your profits. Many funds charge a 1.5% to 2% fee based on your invested capital.
Increasing Portfolio Returns with Alternative Investments
Alternative assets add diversity to your portfolio and do not correlate with the stock market. Many assets in this group hedge against inflation because of their limited supply and continued demand. These investments were previously difficult for retail investors to access, but investing platforms are more accessible and put them on a single platform. You can have exposure to real estate, notes, private equity, and other assets without needing spreadsheets to keep track of everything.
Frequently Asked Questions
Are alternative assets good investments?
Alternative assets can generate strong cash flow with less volatility. They are not correlated to the stock market, which makes them useful for portfolio diversification.
What is the best alternative asset to own?
The best asset depends on the investor. Alternative assets have less volatility but are also less liquid. Some investors need cash flow from their assets now while others can wait a few years.
Is Bitcoin an alternative investment?
Bitcoin and all cryptocurrencies count as alternative investments.