How can investors boost gains and keep risk down, while getting residual income for use in retirement? In order to understand the true advantage of alternative investments, investors must first look at the bigger picture when assessing their current investment opportunities, and then zoom in to assess their individual wants and risk tolerances.
Across the common investing products, there’s an inherent struggle: how to grow capital while minimizing risk. Some common avenues for investors looking to grow their capital are equity investments (including stocks and ETFs), debt (government and corporate bonds), and through cash (checking and savings accounts).
There are advantages and disadvantages to each investment strategy:
With this in mind, many investors are looking for alternatives to these common investing options as a way to generate yield. But what exactly are alternative opportunities, and what do they represent for an investor?
“Alternative investments” is an umbrella term that encompasses many types of opportunities, with different yields, commitments, and payment options. Infrastructure, managed futures, real estate, commodities, and hedge funds are all types of alternative investments. They are tied to different types of assets, some tangible, like precious metals and real estate, and others are intangible, like venture capital. YieldStreet works exclusively in asset-based lending with investment opportunities that are asset-based and secured by real, tangible assets like a property or rights to proceeds from a legal settlement.
“Infrastructure, managed futures, real estate, commodities, and hedge funds are all types of alternative investments. They are tied to different types of assets, some tangible, like precious metals and real estate, and others are intangible like venture capital.”
This means that all of our investments are debt-like and secured by collateral. In the case real estate, it may be a first lien on the mortgage. In the case of litigation financing, it will most likely be an interest in a first payment position on the proceeds from an award or settlement of the case.
Alternative assets have proved to be immensely valuable for portfolio diversification and protecting a portfolio against market volatility. Statistics show that there are currently $6.2 Trillion alternative assets under management worldwide. Alternative investments are favored by finance professionals, with 79% of institutional investors putting some portion of their portfolio into alternatives, and 58% invested in more than one asset class.
When looking at the performance of asset-based investments, we typically compare them to the performance of hedge funds. This is because hedge funds are a type of alternative investment, and a big portion of hedge fund investments are also asset-based (like those you would find on YieldStreet). Comparing hedge fund performance with stocks, bonds, and commodities, hedge funds generally have 1. Less drawdowns, 2. Higher returns, and 3. More growth than a traditional investment portfolio. While bonds prove to be the least volatile option, their yield has consistently stayed low through decades.
Within the world of asset-backed Alternative Investments, some are stronger than others. What investment will have the best chance at growth? There’s no crystal ball that will promise foreknowledge of results, but there are strategies that can help investors move forward more confidently. Any investor should strive to develop their individual investment philosophy tailored to their appetite for yield and risk tolerance.
As always, it is important for investors to evaluate their individual financial goals and risk preferences before making an investment decision. An investment that works for one investor may not be the best investment for you. Explore YieldStreet University to up your investing game, and develop your own investing guidelines before making any financial decisions.
1 Past performance is no guarantee of future results. Any historical returns, expected returns, or probability projections may not reflect actual future performance. All securities involve risk and may result in significant losses.
2 Represents a net estimated, unrealized annualized internal rate of return (IRR) of your portfolio and is based by reference to the effective distribution dates and amounts to and from the investments, as well as any outstanding principal and accrued and unpaid interest as of the current date, after deduction of management fees and all other expenses charged to the investments.[read more]
3 "Annual interest" represents an annual target rate of interest and "term" represents the estimated term of the investment. Such target returns and estimated term are projections of the returns or term and may ultimately not be achieved. Actual returns and term may be materially different from such projections. These targeted returns and estimated term are based on the underlying agreement between the SPV and borrower or originator, as applicable.
4 Reflects the initial quarterly distribution declared by the board of directors on February 6, 2020, which will be payable to stockholders of record as of June 10, 2020, and the initial offering price of $10 per share.
5 The Fund will cease investing and seek to liquidate the Fund's remaining portfolio no later than 48 months after the Fund's initial closing. It may take up to twelve months thereafter to fully monetize any remaining illiquid investments in the Fund's portfolio.
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Alternative investments should only be part of your overall investment portfolio. Further, the alternative investment portion of your portfolio should include a balanced portfolio of different alternative investments.
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