Alternative investments have been steadily growing in popularity over the last several years due to technology and changes in the regulation of securities. The term “alternative assets” can be used to describe the broad range of vehicles available that are designed primarily to mitigate risk and manage volatility.
Until recently, they have been considered investment tools for the ultra-wealthy and included such asset classes as private equity and debt, real estate, precious metals, and more.
Today, the everyday investor can now invest in many forms of real estate, startups, cryptocurrency, and hundreds of new asset classes.
The average investor no longer has to have a personal relationship with the entity offering investments; they don’t necessarily need to be accredited. They can often invest in smaller amounts of as little as $500, like the CalTier fund.
Investors are often cautioned about the excessive risk posed by investing in alternatives. While some of the more exotic (leveraged) investments certainly have their unique risks, the same can be said for many, if not all, traditional long-term-only investments, such as stocks, bonds, mutual funds, and ETFs.
We feel that alternatives can be utilized to decrease overall risk if they are correctly implemented within a diversified portfolio. Their historically low-to-moderate correlation with traditional investments often allows investors to increase their return potential while reducing volatility.
This becomes especially evident during periods of market turmoil when strategies that can mitigate or even capitalize on volatility act as an anchor, even as traditional long-term-only investments are falling precipitously in value.
Furthermore, the funds with more extended lock-up periods often compensate investors with improved returns. This “illiquidity premium” is illustrated smartly in the case of private equity, which offers long-term returns attractive relative to the public equity markets.
We believe that the most common misconception regarding alternative investments is that they are suitable only for the wealthiest investors. Traditionally, high minimums and net worth requirements have reinforced this belief, but in recent years alternative investments have become far more accessible.
Qualified clients who meet specific eligibility requirements can invest with some of the most talented minds in the industry with a relatively reasonable initial investment. What was once the playground of the elites has now been opened to investors of all sizes.
Whether alternative investments are suitable for your portfolio cannot be answered with a simple yes or no. The unique risks involved must be weighed against their potential to offer superior risk-adjusted returns, and they must be considered within the context of a well-diversified portfolio.
So, while alternatives may not be all that mysterious, they still need to be carefully vetted, ideally with the help of an investment professional, before becoming an integral part of your portfolio.
Senior Vice President
CalTier is a FinTech company changing how people around the world invest in real estate and other alternative asset classes. CalTier’s Fund is focused on bringing institutional-grade multi-family real estate investments to the everyday investor and removing the complicated barriers that have existed for years.
We believe that everyone should have access to these types of investments regardless of wealth level, experience, skill, or location. Our first Fund currently has eight assets totaling 1,200 doors and is growing. Anyone over the age of 18 can invest starting with as little as $500 directly from your computer, tablet, or smartphone.
Together with Alto IRA, we also offer the “no-cost” self-directed IRA, which provides a tax-efficient mechanism for investing in real estate and other alternative asset classes.