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Consider the Alternatives

An Introduction to the Fundamentals of Alternative Investments

Alternative investments have been used by institutional investors, such as foundations and endowments. Some traditional portfolios comprised of just equities, bonds and cash have not adequately withstood prolonged market volatility. This has prompted the investment community to seek ways to reduce risk and provide more durable income for clients. These strategies have become available to retail investors.

Alternative Investment goals

  • Durable income
  • Stable returns
  • Long-term growth
  • Improve portfolio efficiency

An Old Strategy Breathes New Life into

Although alternative investments have received a lot of press recently, they really aren’t “new.” They can trace their origins back to the most historic wealth indicators: gold and precious metals. Alternatives evolved from simple commodities like grain and oil, to highly sophisticated programs for managed futures and derivatives.

Alternative investments have the potential to become agents of growth and stability for many clients.

Why Alternatives – Why Now

Alternative investments are typically used to preserve and grow wealth. They offer the potential of a higher risk adjusted return than traditional investments. The volatility of the stock and bond markets are generally not experienced in alternative investments. Let’s face it; there has been plenty of market volatility over the last several years and we’d be foolish to think that it is all behind us. There typically is little connection between alternative and traditional investment performance, which is why they are said to have low correlation.

Advantages

  • Historically outperformed traditional investment vehicles
  • Low correlation with traditional investment markets
  • Helps preserve wealth by smoothing market volatility
  • Expands diversification in portfolio
  • Provides potential for higher returns

Considerations

  • Higher investment minimums
  • Less liquidity than traditional investments
  • Longer capital lockup periods
  • Limited transparency
  • Limited performance history
  • Subject to less regulation than traditional investments
  • Riskier than traditional investment strategies

Questions Answered 

We can help determine if alternative investment strategies might be right for you, and if so, the role they could play in helping you achieve your financial goals. We will also help you determine the amount that you should consider allocating to alternative investment strategies, and the asset classes and sub-classes most suitable for your needs.

These may include:

  • Direct investments
  • Non-Traded REITs
  • ETF’s

Authored by: Thomas Goodson, ChFC®, CLU®, CASL®, Founder, AmeriFlex Consulting Services.

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