February 08, 2021

How to Invest in Alternative Investments as a Retail Investor

Russ Zalatimo
Written by: Russ Zalatimo
Alternative Investment, Pre IPO, Real Estate

When it comes to considering investment options as a retail investor, you probably think of cash, stocks, bonds, and perhaps managed funds. In reality, there are many different assets to invest in. While considered ‘alternatives,’ these assets are relatively well known and understood; such as pre-ipos, real estate, commodities, precious metals, hedge funds, and even fine art.

 

Stocks are a heavily crowded trade, with the large technology stocks (FAANGM) now making up around 25% of the S&P 500 by market capitalization.

Historically, the alternative asset classes have been dominated by institutional investors and high net worth individuals. However, times are changing. High minimum investments and illiquid product structures have made it prohibitive for retail investors to be involved, although it’s now easier to access the benefits of alternative investments than ever before.

New technology, crowdfunding methods, legislation, and deregulation allow qualified investors to participate in a broader range of alternative investment opportunities. Let’s take a closer look at the advantages of alternative investments and the best ways to participate as a retail investor.

Every retail investor that has an understanding of alternative assets should consider options to add them to their portfolio for three main reasons:

 

  • Portfolio diversification. Alternative investments may have a lower correlation with stocks and bonds. Certain currencies and precious metals, for example, , inversely correlated with the rest of the market. Diversification is essential for every well-structured, risk-managed investment strategy. By including assets driven by different macroeconomic factors, the portfolio may become increasingly stable during market volatility.

 

  • Enhanced return potential. When added strategically, the right asset mix may improve a portfolio’s returns without necessarily increasing the blended level of risk.

 

  • Diversified income potential.  Alternative investments may provide a higher yield or cash distribution than typical assets, such as bonds or a savings account. With interest rates near zero, many retail investors are actively on the ‘hunt for yield.’

 

It’s clear that the traditional limitations placed on alternative investments for retail investors are a large part of why they are now so important for consideration. The ability to add different and sometimes unique or obscure assets to a well-constructed portfolio may be beneficial for risk management, investment returns as well as income distributions.

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How retail investors are accessing opportunities

Investing directly in alternative assets is still mostly out of reach. It’s not practical for most retail investors to negotiate a share of an exclusive painting, commercial property, or start-up business. Fortunately, there have been several factors in the past decade that has made smaller investments in alternative assets much more feasible.

 

The Jumpstart Our Business Startups (JOBS) Act of 2012 has played a significant role in opening up the investment market. The JOBS Act essentially granted retail investors access to certain private equity offerings and allowed the formation of new alternative fixed-income and structured products that can be offered to retail investors.

 

How? The Act permits small issuers to source capital from any investor without having to abide by the previous expensive and restrictive reporting requirements. This means that issuers of alternative assets no longer had to limit themselves to ‘accredited investors’ (the wealthy and institutions), opening up the alternative investment market to everyday people.

 

There are a range of new fintech companies and start-ups designed to pool retail investor’s funds and provide access to alternative investments. More and more options are popping up every year as different alternative assets are converted into retail offerings.

 

Peer-to-peer lending is another recent solution that allows a group of investors to pool their funds and lend to a borrower directly, without a bank intermediary. The interest rates reflect the risk of the loan and may offer an alternative income stream to traditional cash and bond investments.

 

One of the significant opportunities for retail investors is equity crowdfunding. Directly a result of the JOBS Act, non-accredited (retail) investors can purchase shares in private companies, as long as they raise less than $1 million throughout the and meet other qualifying filing requirements. This allows investors to access small private companies and start-ups that were previously inaccessible.

 

Companies such as HUDSONPOINT Capital provide retail investors with the platform they need to access a wide range of alternative investment opportunities, including pre-IPO’s, real estate, and hedge funds. By pooling investor’s funds, HUDSONPOINT can access unique investment solutions that may help with risk-adjusted return profiles designed to meet your financial goals as a retail investor.

 

 

 

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.
Information regarding the JOBS Act was a small portion of the full Act.  Investors are encouraged to read the Act in its entirety for any information that could be viewed as a potential investment decision.
Securities offered through National Securities Corporation Member (NSC) FINRA/SIPC.  HUDSONPOINT Capital is not affiliated with NSC.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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