For those looking to break through the chains of traditional investment opportunities many turn to alternative investments. However, a few falsehoods are surrounding these opportunities that tend to steer nervous investors away.
If you’ve resisted engaging in an attractive alternative investment based on fears, let us help put your mind at ease.
Busting these myths is a great starting point in the conversation around investing in alternatives to enhance your portfolio.
Myth #1: All Alternatives are Equal
Risk and return features will vary between all assets, and this is why it’s common to allocate across different asset categories.
By spreading out assets and investing in multiple strategies, you’ll diversify, enhance ROI, and reduce risks.
Myth #2: Only Institutions and High Net Worth Investors Benefit
Institutional investors tend to be frequent users of alternative investments, but the market is not reserved solely for them.
Actually, today more than ever, individual investors have greater access to alternatives thanks to recent innovations in product structures.
Myth #3: Alternatives Are Too Expensive
This isn’t a one size fits all kind of question, every situation differs, but there are some fee structures linked to alternative investments that aren’t typically seen in traditional investments.
In general, the “hidden fees” commonly associated with alternative investments refer to those related to positive performance that compensates the asset manager.
Long story short, the manager doesn’t earn compensation until the investor does.
Myth #4: Alternatives are Only Successful When the Market Is Not
All alternatives are not created equal. Therefore there is a place for private alternatives in every market. The key is to evaluate them on a deal by deal basis.
Myth #5: Alternatives are Inconsistent
Many, incorrectly, say that alternative investments are more volatile than stocks and bonds. However, in the long run, they are much more stable than stocks and bonds because investors view alternatives as a long-term investment and cannot trade in and out of them.
Myth #6: Investors Can’t Access Their Capital
The level of liquidity is dependent upon the investment itself. When investing in illiquid assets, investors should expect to be compensated through improved risk-adjusted returns.
Also, investors can seek alternative funds designed to manage less liquid investments directly with strategies that have higher degrees of liquidity.
Myth #7: Alternatives are for Everyone
This will depend largely on your personal short and long-term financial goals. Explore all the options and anticipate how different strategies fit into your overall asset allocation.
If you’re unsure of how alternatives will fit your portfolio, don’t hesitate in seeking second and third opinions from knowledgeable sources.
Take the Plunge!
We hope we were able to debunk some common myths regarding alternative investments so that you have a clearer picture when planning your financial future.
If you’re ready to take control of your future, we can connect you with trusted advisors. Take advantage of our connections and knowledge to fast track your progress!
Let’s get to know each other, and we’ll help craft the best plan of action.