Exploring the Advantages of Alternative Investments

The investment landscape has evolved over the years, with various asset classes offering accredited investors unique opportunities to grow their wealth and hedge against market risks. With a growing desire among investors to understand these alternative avenues, let’s delve into the key benefits they offer.

Alternative investments have been increasingly drawing the attention of seasoned and new investors alike, with many seeing them as a refreshing contrast to the limitations of traditional public markets. First and foremost, let’s establish what alternative investments entail. Essentially, the term “alternative” refers to options outside the realm of traditional investments like stocks, bonds, and mutual funds.

These conventional investment avenues have long been the cornerstone of most investors’ portfolios. However, alternative investments pave a new way for diversification and growth beyond these familiar options.

The landscape of alternative investments experienced a seismic shift in 2012 with the emergence of the Jobs Act. This regulatory change dismantled the exclusive barriers surrounding these investment types, which were historically reserved for institutional investors such as pensions, foundations, and hedge funds.

The floodgates opened, enabling a broader market and the average investor to participate in these once-exclusive opportunities. This democratization has democratized the investment field, leading to a surge in interest and participation.

In recent years, the demand for private alternative investments has soared exponentially. Fuelled by the advantages they offer, this market segment has witnessed remarkable growth over the past five to ten years. With more investors intrigued by the unique prospects these investments present, the momentum shows no signs of slowing down.

Reduced Correlation

One of the foremost benefits of alternative investments is their low correlation to traditional asset classes, like stocks and bonds. This means that the performance of alternative investments might not necessarily move in tandem with traditional markets. This reduced correlation can act as a buffer during periods when traditional assets underperform.

This inherent stability can act as a shield against the unpredictable swings of the broader market. Turning to uncorrelated private alternatives that provide a fresh avenue of investment, apart from the volatility of public markets. Alternative investments often allow exposure to different sectors, geographies, or investment strategies that might be difficult to access or replicate in public markets.

Many alternative investments, such as venture capital and private equity, derive their returns from company-specific or asset-specific factors rather than broader market movements. This can provide a safeguard against broader market downturns.

Public vs. Private Alternatives

It’s crucial to differentiate between public and private alternative investments. To truly explore the realm of alternative investments, we must turn our focus to the private market. Here, a rich array of options emerges that stand as alternatives to the more conventional assets of stocks, bonds, and mutual funds.

Public alternatives encompass instruments like Real Estate Investment Trusts (REITs), which allow investors to engage with real estate publicly. Yet, there are limitations and drawbacks associated with these public alternatives.

While REITs in the public domain might seem attractive, they come with their own set of challenges. High fees draw down the performance and a layered structure means investors are multiple steps removed from the actual assets. On the other hand, private alternative investments, particularly in real estate, offer a more direct connection with the invested assets, making the experience more transparent and often more lucrative.

The modern public markets often leave income-seeking investors disappointed, especially those on the hunt for consistent returns. Whereas private market real estate investments often yield around 7-10%. For the cash-flow hungry investor, such figures are a tantalizing proposition.

The Focus On Real Estate

Within the realm of private alternatives, certain sectors have gained prominence. Notably, real estate, venture capital, and hedge funds emerge as the most common players. Among these, our attention turns to real estate due to its accessibility for the average investor and the array of benefits it holds.

The allure of real estate lies not just in its tangibility but also in its ability to offer diversification, cash flow, potential for appreciation, and tax benefits.

For many, the idea of holding tangible assets is appealing. Private real estate offers this benefit, allowing investors direct ownership of assets. Compare this with public market investments, where the investor might feel disconnected, being far removed from owning the actual asset.

Look for firms or individuals that manage the assets you invest in. Some, like Accelerated Capital, offer the opportunity to invest directly into a singular asset or become part of a larger fund that owns multiple assets. This offers flexibility and caters to the varying needs of different investors.

Private real estate investments are not just about potential profitability; they’re also about smart financial planning. These investments often come with tax advantages like long-term capital gains and depreciation. Moreover, with direct ownership, you have tangible collateral, which can be a significant boon in protecting your capital.

Portfolio Enhancement

By including alternative investments, a portfolio can potentially achieve better risk-adjusted returns. The combination of traditional and alternative assets can optimize the return-to-risk ratio, leading to a more balanced and efficient portfolio.

Certain alternative investments, like real assets (real estate, infrastructure, and commodities), can act as a hedge against inflation. As inflation erodes the purchasing power of currency, investments in tangible assets can preserve and potentially increase in value.

Many successful investment managers operate in the alternative space, and investing in their funds can give accredited investors access to their expertise. These managers often have specialized knowledge and can navigate complex investment environments with dexterity.

Wrapping Up

The vision of sipping mojitos on a beach while your investment does the work isn’t too far-fetched with alternative investments. They present a golden opportunity for investors who prefer not to be entangled in the nitty-gritty of managing properties or assets.

With firms like Accelerated Capital at the helm, all operational details are managed, allowing investors to reap the benefits without the hassle. It’s a world where you can truly enjoy the perks of being a passive investor.

With all these advantages on display, it’s hardly surprising that there’s a swelling tide of investors leaning toward alternative investments. The trend isn’t just about the benefits; it’s also about the ease with which even newer investors can understand and engage with this domain.

The world of alternative investments, particularly private real estate, offers a promising landscape. While the potential benefits are numerous, as with all investments, it’s essential to conduct thorough research.

Remember, diversifying your portfolio doesn’t just mean spreading your investments across sectors, but also across different types of investment avenues. With its myriad benefits, private alternative investments might just be the addition your portfolio needs.