The characteristic features of the American markets are strange indeed – while the prices of stocks are too high, the yields of bonds are way too low. This is why there are many investors who keep watching out for alternative assets. This leads to investing in alternative investments which is a far-reaching category that comprise of commodities, currencies, private equity, real estate and collectibles or art. These are ideally anything apart from bond and stock markets.
However, before investing in alternative investments, you need to consider whether or not it is the perfect option for building your portfolio. Well, not always! Here is what you should know about investing in this alternative world.
The world of alternative asset is altogether a different world
You need to put in a lot of effort in order to venture beyond the conventional asset classes and that too for a worthy and good reason. When it comes to the world of alternative investments, it comprise of the riskier options as the name suggest, ‘alternative’ means having higher risks, fees and taxes and which usually may have less liquidity & transparency. Pricing will be less and you will be concerned about how easy it might be to sell and buy assets.
However, one thing you need to take into account is that such alternative assets won’t let you buy through brokers who work online, as they can be got through wealth management firms and money managers. There is an aura of exclusivity among alternative investment due to requirements of net worth and the investment channels which are not easily accessible.
In order to be sure about the positive impacts of alt investment, you can get in touch with an investment advisor who can share the benefits of investment portfolio diversification and tell you how you can earn potentially high returns. Off late, it is being seen that such pitches have become commonplace as increasingly large numbers of investors are looking for ways to protect their portfolios from different kinds of swings in the market. Alt investments don’t move along with the movement of bonds and stocks.
What is the ultimate trap?
There are numerous studies which have emphasized on the two main USPs of alternative investment, better returns and improved diversification of assets. It has been seen that adding alternative assets to your investment portfolio increases performance of the assets and decreases risk as against a portfolio which only comprises of bonds, stocks, as per the Wells Fargo Investment Institute.
However, there are several pitfalls of investments as well which an investor should take into account. Alt investments are niche products which have higher fees than conventional asset and this is why it is tough to nail down the fees. Apart from that, you also have to make sure you know all sorts of tax implications for the possible investments and compare them with bonds and stocks.
So whenever you think of investing in alt investments, take into account the above mentioned facts so that you may take an informed and a measured decision.