April 30, 2022

Avoiding Stock Market Volatility With Alternative Investments

Written by: HUDSONPOINT Team
Alternative Investment, Market Update, Private Equity, Stock Market

stock market volatility, hudsonpoint capital, alternative investmentsStock market volatility can’t be avoided forever. When a new, shaky market comes around, many investors may panic, sell too many securities, and lose money.

If this has happened to you, you might want to know how to possibly avoid stock market volatility from affecting your portfolio.

Even though you can’t predict the market with perfect accuracy, you can potentially weather volatility more readily through alternative investments.

Today, let’s break down what alternative investments are, how they work, and how they may help you avoid stock market volatility by diversifying your portfolio.


Alternative Investments Explained

Alternative investments are any financial assets that don’t fall into “traditional” investment types or categories. For example, traditional investment categories include cash, stocks, or bonds.

Alternative investments represent different opportunities for investors to use their money wisely. When invested properly, alternative investments could possibly help individuals with effects of market volatility.


Examples of Alternative Investments

Alternative investments come in a variety of types. Some of the most common alternative investments include:

  • Real Estate;
  • Hedge Funds;
  • Venture capital or private equity;
  • Tangible assets such as gold, silver, and other precious metals;
  • Commodities, such as foodstuffs or oil;
  • Illiquid credit;
  • Any liquid alternatives, including mutual funds or exchange-traded funds.

Because alternative investments are less intuitive than stocks or bonds, many investors fail to take advantage of them. However, alternative investments are not that different from traditional investment vehicles/assets. In addition, some alternative investments, like real estate, are more tangible than stocks.



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How Do Alternative Investments Potentially Protect From Market Volatility?

In essence, alternative investments can possibly protect investors from market volatility by storing their cash in assets which could potentially be less affected by that volatility.

Market volatility is characterized by rapid fluctuations in the market prices for many securities, typically within one standard deviation of the average price. For example, if the stock market’s major assets or the S&P 500 see major price fluctuations over a relatively short period, the market is said to be “volatile.”

More often than not, volatility is a worrying sign for traditional investors; investors may worry that their investments will rapidly lose money when that volatility creates these unpredictable price swings.


Insulating Investments From Bear Markets

In many cases, this fear is enough to start a chain reaction and a market crash, or “bear market,” as individuals sell their securities or other assets to save money.

However, alternative investments are not as affected by the price fluctuations of traditional securities. For example, an alternative investment vehicle in real estate syndications is not as affected by price dips in the S&P 500 as, say, Microsoft’s stock.

By investing in alternative investment vehicles, investors:

  • Keep their money in the market, so it continues to work for them.
  • Possibly will not suffer major losses from taking their money out of the market during periods of high volatility.
  • Potentially will not contribute to more market instability by selling their assets.

Alternative investments may offer a safe harbor from occasional and inevitable market volatility for wise investors. No matter how strong the stock market seems today, it can always go down tomorrow. But diversifying one’s portfolio with alternative investments can potentially lead to a profitable long-term strategy.

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Benefits of Investing in Alternative Investments During Stock Market Volatility

Just what are the benefits of putting your money in alternative investments? There are three primary advantages you might see if you invest in alternative vehicles with the assistance of an advisor or investment firm.


#1 – Less Fluctuation

As detailed above, alternative investments may experience less price fluctuation than traditional investments.

Why? Two reasons:

  • Alternative investments are less regulated by the US Securities and Exchange Commission (SEC). They are usually illiquid, so they are tied to tangible assets in ways that traditional securities, like stocks, are not.
  • They cannot be sold as quickly as traditional investments. Alternative investment vehicles are illiquid, so they can’t be sold at a moment’s notice like a stock can. Therefore, even those who wish to sell alternative investment vehicles may not be able to keep prices stable.

These factors contribute to an overall potentially stabler market for many alternative investments. However, note that some alternative investments are riskier than traditional investments. They sometimes require more investment capital from their investors upfront for this reason.


#2 – “Buffer” Actions

Investors can take advantage of new investment options and activities by investing in alternative investment vehicles. There’s more to stock market investing than simply buying or selling securities.

When invested in alternative vehicles, they can perform stock actions like hedging, which can help offset the risk of volatile price movements. Investors may alternatively employ trading techniques to potentially make a profit when stock prices fall.

These alternative trading options can help to buffer the cash in an investor’s portfolio. In turn, this possibly insulates them from market volatility and major losses. Done properly, it can even potentially yield high returns.


#3 – New Investment Options

Lastly, alternative investments provide investors with new opportunities for their money to potentially make more of itself. Alternatives allow investors to tap into potentially risky but specialized marketplaces. These include marketplaces for infrastructure, real estate, commodities, private markets, and more.

This ties into the broader philosophy of “portfolio diversity.” Generally, it’s wiser to keep a diverse portfolio with your money stored in many assets than to put all of your proverbial eggs in a single basket.

Diversifying your portfolio with alternative investments possibly means that any single market action may not decimate your savings.


Are Alternative Investments Right for Everyone?

Even with these benefits, some investors may be hesitant to take advantage of alternative investments and attempt to protect themselves from market volatility.

Investment platforms such as HUDSONPOINT Capital can assist with recommendations necessary avoid stock market volatility and to navigate alternative markets.

Ultimately, only you can determine whether alternative investments are good solutions for potentially weathering market volatility.


Contact us today to get started.


The opinions expressed are those of HUDSONPOINT capital and not those of B. Riley Financial and National Securities Corporation.
Please note that any investment involves risk including loss of principal. Some risks of investing directly or indirectly in real estate include declining real estate values, changing economic conditions and increasing interest rates.
This is for informational and educational purposes only and should not be construed as investment advice or an offer or solicitation of any products or services. Opinions are subject to change with market conditions. The views and strategies may not be suitable for all investors and are not intended to be relied on for legal or tax advice.
Securities offered through National Securities Corporation Member FINRA/SIPC


















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