Yieldstreet’s offerings fit into the broad rubric of alternative investments. You probably already know alternatives are distinct from traditional investments like cash, stocks, and bonds. From there, though, the story gets more complicated—and more interesting. Alternatives typically have low correlation with traditional asset classes, potentially creating downside protection in times of market stress. And some alternatives provide the possibility of additional portfolio income—an attractive attribute in low-interest rate environments like the one we’re experiencing today.
Investors divide the world into asset classes. An asset class is a group of investments that tends to move together, but has distinct characteristics from other investment types. Traditional asset classes include stocks, bonds, and cash. These three asset classes have a few common features: you can see their prices quoted daily, they’re broadly accessible, and their markets are heavily regulated, producing a lot of public information about their risks and opportunities. Because prices and fundamental information about these investments are available to so many investors, the markets for traditional asset classes tend to be efficient, meaning their prices tend to reflect their underlying value. This can make it difficult to find bargains among traditional asset classes.
A number of very different asset classes fall into the category of alternatives. Examples include:
Each alternative asset class behaves differently in different economic environments. And within each asset class, there are smaller categories. For example, many Yieldstreet investments fall under the Real Estate Debt and Private Debt segments. Its Private Debt investments are mainly backed by real estate assets, but Yieldstreet also offers debt investments backed by art, marine, and other assets.
While each type of alternative investment has unique qualities, they all have one thing in common: They tend to respond to economic conditions in ways that are distinct from stocks and bonds. Alternatives tend to represent areas of the global economy that stocks and bonds may not cover. This gives alternatives potentially powerful diversification characteristics that may help investors manage downside risk.
Traditional guidance suggests that investors should diversify among different asset classes. Going from all stocks to a blend of stocks and bonds can help to diversify risk. Going from all stocks and bonds to stocks, bonds, and alternatives creates additional diversity. Since no one can pick which asset class might perform best going forward, it’s often recommended to hold a variety of asset classes to prepare for a variety of future possibilities.
The table below illustrates: for the past seven years, an all-stock portfolio would have performed the best. But in the seven years before that, an all-stocks portfolio would have performed the worst.
Keep in mind: stocks have been on an incredible bull run since the Financial Crisis of 2008. The rally has been largely concentrated in a handful of giant tech companies, and volatility has risen in the past year, so there may be some reason for investors to be cautious about stocks going forward. And it’s when stocks and bonds deliver poorer returns that alternatives tend to be helpful. That dynamic is clearest when looking at portfolio downside. In the financial crisis of 2008 and in the COVID correction of 2020, a portfolio of stocks, bonds, and alternatives helped buffer against downside risk.
While traditional stock-and-bond diversification has historically done the heavy lifting in terms of protecting portfolios on the downside, investors should consider that today’s low interest rate environment may make it difficult for investors to capture attractive long-run returns by allocating to traditional bonds.
Alternative income investments like those available on Yieldstreet can help investors on two fronts: first, they provide the possibility of additional diversification beyond what’s available to traditional stock-and-bond investors. Second, Yieldstreet’s investments target higher rates of return than what can typically be found in the investment-grade bond market. Yieldstreet has typically targeted yields in the 7% to 15% range. Lack of liquidity and smaller deal sizes in the private debt market usually translate into higher returns but could also mean that there are less pairs of eyes scrutinizing private debt deals, and investors may want to conduct more due diligence on their own to find attractive and appropriate opportunities—there’s no free lunch in investing. (On the flip side, because fewer investors are evaluating these opportunities, there may be more opportunities to find bargains.) For investors who are looking for additional ways to pursue higher investment returns while potentially reducing their portfolio’s exposure to stock market risk, Yieldstreet’s offerings may be attractive.
Every investor has a distinct time horizon, need for liquidity, ability and willingness to take risk, and return objective. The right allocation to alternatives depends on these and other personal factors; there’s no one-size-fits-all optimal allocation. For investors who believe alternative strategies are suitable, a common rule of thumb is to allocate between 10% and 25% of a portfolio to alternatives. A smaller allocation may not create noticeable improvements, and a larger one risks tilting the portfolio away from traditional asset classes, which have a strong long-term track record of growing along with the overall economy and typically form the core of many investors’ portfolios.
Regardless, investors who have enjoyed strong returns in the stock market in recent years may want to consider “rebalancing” their portfolios into alternative strategies. With interest rates near historic lows, stock valuations running high, and a global pandemic creating a high degree of uncertainty, alternatives may represent an attractive risk-reward proposition for investors who desire income but are concerned about taking additional stock market risk.If you have additional questions regarding Yieldstreet or offerings on our platform, please email us at [email protected].
This communication and the information contained in this article are provided for general informational purposes only and should neither be construed nor intended to be a recommendation to purchase, sell or hold any security or otherwise to be investment, tax, financial, accounting, legal, regulatory or compliance advice. Any link to a third-party website (or article contained therein) is not an endorsement, authorization or representation of our affiliation with that third party (or article). We do not exercise control over third-party websites, and we are not responsible or liable for the accuracy, legality, appropriateness or any other aspect of such website (or article contained therein).
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.
6 Represents the sum of the interest accrued in the statement period plus the interest paid in the statement period.
7 The internal rate of return ("IRR") represents an average net realized IRR with respect to all matured investments weighted by the investment size of each individual investment, made by private investment vehicles managed by YieldStreet Management, LLC from July 1, 2015 through and including January 8th, 2021, after deduction of management fees and all other expenses charged to investments.
8 Investors should carefully consider the investment objectives, risks, charges and expenses of the Yieldstreet Prism Fund before investing. The prospectus for the Yieldstreet Prism Fund contains this and other information about the Fund and can be obtained by emailing [email protected] or by referring to www.yieldstreetprismfund.com. The prospectus should be read carefully before investing in the Fund. Investments in the Fund are not bank deposits (and thus not insured by the FDIC or by any other federal governmental agency) and are not guaranteed by Yieldstreet or any other party.
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Any financial projections or returns shown on the website are estimated predictions of performance only, are hypothetical, are not based on actual investment results and are not guarantees of future results. Estimated projections do not represent or guarantee the actual results of any transaction, and no representation is made that any transaction will, or is likely to, achieve results or profits similar to those shown. In addition, other financial metrics and calculations shown on the website (including amounts of principal and interest repaid) have not been independently verified or audited and may differ from the actual financial metrics and calculations for any investment, which are contained in the investors’ portfolios. Any investment information contained herein has been secured from sources that Yieldstreet believes are reliable, but we make no representations or warranties as to the accuracy of such information and accept no liability therefor.
Private placement investments are NOT bank deposits (and thus NOT insured by the FDIC or by any other federal governmental agency), are NOT guaranteed by Yieldstreet or any other party, and MAY lose value. Neither the Securities and Exchange Commission nor any federal or state securities commission or regulatory authority has recommended or approved any investment or the accuracy or completeness of any of the information or materials provided by or through the website. Investors must be able to afford the loss of their entire investment.
Investments in private placements are speculative and involve a high degree of risk and those investors who cannot afford to lose their entire investment should not invest. Additionally, investors may receive illiquid and/or restricted securities that may be subject to holding period requirements and/or liquidity concerns. Investments in private placements are highly illiquid and those investors who cannot hold an investment for the long term (at least 5-7 years) should not invest.
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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Investing in private placements requires long-term commitments, the ability to afford to lose the entire investment, and low liquidity needs. This website provides preliminary and general information about the Securities and is intended for initial reference purposes only. It does not summarize or compile all the applicable information. This website does not constitute an offer to sell or buy any securities. No offer or sale of any Securities will occur without the delivery of confidential offering materials and related documents. This information contained herein is qualified by and subject to more detailed information in the applicable offering materials. Yieldstreet™ is not registered as a broker-dealer. Yieldstreet™ does not make any representation or warranty to any prospective investor regarding the legality of an investment in any Yieldstreet Securities.
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