New investors often assume that investing is strictly limited to the stock market. But there is a whole galaxy of alternative investments beyond the more typical stocks and bonds that everyone talks about.
As your net worth grows, you might want to take your portfolio up a notch and diversify your portfolio. A properly diversified portfolio includes different types of stocks and bonds—international stocks, for example—and it also includes something called alternative investments.
There many reasons for buying alternative investments. The main reason for using alternative investments is to help spread out your risk by giving your portfolio an extra layer of diversification. Alternative investments are seen as a way to diversify against potential downturns in the valuations of traditional investments. Other reasons include the following:
– To lower correlation to traditional stock and bond markets
– To invest capital for a longer timeframe in exchange for higher return potential
– To hedge a portfolio against inflation or rising interest rates
Should you invest in alternatives? Unfortunately, there is no one-size-fits-all answer. It all depends on your current situation, financial goals, and the resources at your disposal.
There are countless alternative investment strategies being applied in the marketplace today, and simply conducting research and due-diligence on all of them to determine their risk and reward characteristics can get tedious. But, here are a few questions you should ask yourself when considering your options:
– Am I investing for a long time horizon?
– Does my portfolio need additional diversification beyond typical stock and bond asset classes?
– Is there a chance I will need to access this money in the near term?
– Is my risk tolerance sufficient for these opaque and lightly regulated investments?
– Do I have a trusted professional helping me find the right investment options?
Historically, access to alternatives was limited to institutional and high-net-worth investors. However as their popularity has increased, they have become more widely available. A good example of an alternative investment that is now made widely available is real estate through crowdfunding.
Real estate crowdfunding has disrupted the status quo of real estate investing with online platforms that put new opportunities that were previously exclusive to the ultra wealthy into the hands of everyday investors.
According to a recent article in Forbes, less than 10 years from now the real estate crowdfunding industry is expected to be valued at more than $300 billion…a nearly ten-fold increase from today’s industry value of just over $34 billion.
Here are some of the reasons by so many people are investing so much money in real estate crowdfunding:
– They are able to participate in large, high-quality real estate investments with small amounts of capital.
– They can choose specific properties to invest in thanks to the transparency of crowdfunding or select from funds that match individual investment strategies such as income, growth, or more aggressive venture capital portfolios.
– They get a balanced blend of both active and passive investment allows investors to analyze individual opportunities while leaving the buying, managing, and selling to experienced real estate professionals.
– Crowdfunding allows deals to be executed quickly resulting in increased opportunities for real estate investors.
With so many benefits to alternative investments, it’s no wonder they continue to grow at rapid rates. As investors realize the benefits of higher returns and lower risks that many of these alternative investments have, we expect this growth to continue well into the future.
If you’d like to learn more about real estate crowdfunding, read our favorite posts:
DiversyFund’s crowdfunding platform is dedicated to offering everyone the opportunity to diversify their portfolio. We are opening up what used to be exclusive wealth building opportunities to everyone. Crowdfunding allows us to aggregate dollars to purchase real estate, we develop it manage it, receive the cash flow, and then divide the profits.
We combined our decades of real estate expertise with technology to make investing even more cost-effective for people like you. Now, you don’t need to be a millionaire or an expert to invest in real estate. Multi-million dollar investment opportunities can be shared for as little as $5,000, and everyone can join in.
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