Discover Alternative Investment Strategies

Looking To Diversify? Consider These Alternative Investment Strategies To Add To Your Portfolio

 

The term “alternative investment strategy” is inherently misleading. While 56 percent of Americans own a stock portfolio, nearly 59 percent of Americans are interested in alternative investments, which include real estate, cryptocurrencies, commodities, and more. That makes it seem less like the alternative and more like the norm.

 

The reality is that alternative investments could be an additional way to diversify your portfolio. In fact, some financial advisors recommend allocating as much as 15 to 20 percent of your portfolio into your alternative investment strategy.

 

From pre-IPOs and hedge funds to real estate, private equity, and more, these alternative investment strategies are worth looking into, as they can offer potential outperformance returns compared to standard indices for investors.

 

Alternative vs Traditional

 

To understand how alternative investment strategies work, it’s important to realize the differences between alternative and traditional investments.

 

Traditional investments include assets like stocks, bonds, and cash. Alternative investments, meanwhile, include real estate, private equity and venture capital, hedge funds, commodities and managed futures, energy, pre-IPOs—the list goes on.

 

Many investors don’t take advantage of or explore the full range of alternative investments, as they tend to associate “alternative” with “volatile” or “high-risk.” However, this isn’t always the case.

 

In reality, alternative investments can provide similar, higher, or lower returns than stocks or bonds, but can offer significantly reduced volatility. This is because alternative investments are not directly correlated to the rise and fall of the stock market.

 

That’s not to diminish the value of traditional investments. Traditional investments have the advantage of liquidity, where alternative investments can sometimes be illiquid, and therefore subject to liquidity risk.

 

It’s important to recognize the potential that both alternative and traditional investments can offer, and how they may benefit investors.

 

Pre-IPOs

 

Pre-IPOs, or pre-Initial Public Offerings, are a way to invest in private companies before they go public. It allows businesses to raise money and “test the waters” before a public launch.

 

Part of that is because pre-IPO shares could be discounted compared to shares in a company that has already gone public. This means investors can potentially sell their pre-IPO shares for a profit if and when an IPO happens.

 

While pre-IPOs have the potential to be profitable, they, like any investment, do come with their own risks. Investing in a pre-IPO can tie up your money for an uncertain amount of time, as you most likely won’t be able to sell until the company decides to go public, assuming it does. And, of course, if the company goes bankrupt, you could lose all your money.

 

Pre-IPOs come on a first-come, first-serve basis, and until recently, were limited to hedge funds, private equity and venture capital firms, and other similar institutions. This exclusivity isn’t so much the case anymore, as pre-IPOs have become increasingly accessible for qualified retail investors.

 

If you’re looking for alternative investment strategies, pre-IPOs may be worth looking into.

 

 

Real Estate

 

Another promising yet somewhat misunderstood alternative investment strategy is real estate. For decades, real estate has been a smart investment strategy for investors seeking consistent, reliable cash flow. What’s more is that real estate usually holds or preserves its value better than most other assets, even in cases of economic uncertainty, such as unexpected inflation or market downturns. Real estate has historically appreciated over time, which can translate into a sustainable return on your investment compared to other assets.

 

The average investor might consider real estate too big of a commitment, or too expensive to be worth considering, but that’s not at all true.

 

While real estate can be an intimidating or cost-heavy investment, it doesn’t have to be, thanks to the rise of partnered and crowd-funding investment options like real estate syndication, ETFs, and REITS. These methods have made it possible for average investors to pool their resources and invest in a project together, decreasing both cost and risk for the individual investors.

 

 

Hedge Funds

 

One of the more frequently invested alternative strategies continues to be hedge funds. In short, hedge funds subscribe to non-traditional portfolio management strategies, with the ultimate goal of being market-beating returns. Hedge fund managers create a prospectus, which individuals and businesses who believe in their philosophy can then buy into.

 

Hedge funds aim to produce market-beating returns. By the close of 2020, the highest-performing hedge funds collectively reaped $127 billion just over the course of the year. The top two performers, Tiger Global manager Chase Coleman and Millennium Management’s Izzy Englander, made $10.4 billion and $10.2 billion, a 48 percent and 26 percentage gain, respectively.

 

Hedge funds do require significant research and know-how prior to investing. Still, a hedge fund can be a welcome addition to an alternative investment strategy, if chosen properly.

 

Here at HUDSONPOINT Capital, we help you access the world of alternative investment strategies, making it easy for you to diversify your portfolio and focus on making sure your money works for you.

 

A portfolio that features both traditional and alternative investments could potentially outperform one with traditional investments alone, and you can anticipate reduced risk by investing in a more diversified strategy.

 

Interested? Let us help you identify a diversified portfolio of investments that are right for you schedule a call to speak with an advisor

 

 

 

 

 

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