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Stocks. Bonds. Cash. The traditional investment choices have served investors for as long as there have been markets. However there have been times — see 2008 — when market dynamics were turned on their head and the unthinkable happened.
Alternative investments have been around for a long time but have come more in focus since the “Great Financial Crisis” in 2008. They provide a hedge against market volatility, provide greater portfolio diversification, offer less liquidity and have potentially higher long-term returns.
Let’s look at how alternative investments can be part of a well-rounded investment strategy.
Understanding alternative investments
Alternative investments encompass a broad spectrum of assets beyond the conventional realms of stocks and bonds. They often exhibit low correlation with traditional markets, making them valuable tools for diversification and risk management within investment portfolios. Examples of alternative investments include:
• Real estate — Direct ownership of properties, real estate investment trusts (REITs) or real estate crowdfunding platforms.
• Private equity — Investments in private companies, venture capital funds or private equity funds.
• Hedge funds — Investment funds that employ various strategies to generate returns, often using derivatives, leverage or short-selling.
• Commodities — Physical goods such as gold, silver, oil or agricultural products, as well as commodity futures contracts.
• Infrastructure — Investments in infrastructure projects such as toll roads, airports or renewable energy assets.
Why consider alternative investments?
There are several compelling reasons.
• Diversification — Alternatives have the potential to reduce portfolio volatility and enhance risk-adjusted returns by providing exposure to different asset classes and investment strategies.
• Potential for higher returns — Alternative investments may offer attractive returns that aren’t as tied to traditional markets, providing opportunities for capital appreciation and income generation.
• Inflation hedge — Certain alternative assets, like real estate and commodities, can serve as effective inflation hedges, preserving purchasing power over the long term.
• Access to unique opportunities — Alternative investments grant access to specialized markets and investment strategies that may be inaccessible through traditional avenues.
Portfolio allocation and risk management
The allocation of alternative investments within a portfolio should be tailored to the investor’s risk tolerance, investment objectives and time horizon.
Here to answer your questions
In the last two years, 1900 Wealth has raised about $130 million in 34 diversified alternative investment opportunities. We have made alternative investments part of our practice so we can provide you with sound advice and new ways of diversifying and protecting your assets.
Our goal is to select three or four carefully sourced alternative investments a year. As a firm, we concentrate on opportunities in private equity, real estate, venture capital, private credit and direct lending.
Please contact 1900 Wealth if you’re curious about alternatives. Call us at (210) 776-7770 to schedule a meeting with an investment advisor or visit our website, www.1900Wealth.com.