What Are Alternative Investments?
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.
The Common Investing Landscape
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:
- Equities generally offer higher yields, but they’re vulnerable to volatility, scaring many investors onto the sidelines.
- On the other hand, bonds, while generally being one of the least volatile investment opportunities, may have extremely low yields.
- Finally, cash, while safe, doesn’t grow at all, and can actually erode your purchasing power over time due to inflation.
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 Asset Classes
“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.
Performance of Alternative Investments
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.
A Philosophy of Investing
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.
- If you are an investor who is looking for monthly payments and are willing to invest for a longer term, an investment in a real estate opportunity may be appealing.
- If you are an investor who is looking for a higher yield and is willing to take on the “inconvenience risk” of being paid on an event-driven basis, an investment in litigation finance may be beneficial for you.
- If you would like to get your toes wet with litigation finance, an accelerated litigation finance portfolio may be the right investment opportunity for you, because it offers a shorter duration and a similar yield to diversified portfolios.
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.
What's Yieldstreet?
Yieldstreet provides access to alternative investments previously reserved only for institutions and the ultra-wealthy. Our mission is to help millions of people generate $3 billion of income outside the traditional public markets by 2025. We are committed to making financial products more inclusive by creating a modern investment portfolio.
2 Represents an net annualized return, using an internal rate of return (IRR) methodology, with respect to the matured investments shown in your Portfolio experience, utilizing the effective dates and amounts of subscriptions and distributions to and from the investments, net of management fees and all other expenses charged to the investments.[read more]