Alternative Investments Appeal to Savvy, Confident Investors

In search of a better return on investment, while protecting against stock/bond volatility, savvy investors confidently invest in alternative investments.

Seeking greater return on investment, while shielding portfolios from the volatile nature of stock and bond trading, wealthy investors continue to invest in alternative investments. If you fancy yourself a savvy investor and you have the tolerance for risk, non-traditional investing options are an appealing alternative to stocks and bonds.

The Alternative Investment Landscape

Further examination of the ownership and sourcing of alternative investments, as well as the use of private equity investing, the Spectrem Group’s latest perspective report: Use of Hedge Funds and Private Equity in the Portfolios of the Wealthy; uncovered that:

  • The average investment for the US$25 million investor ranges from US$3.5 million for private placements to US$12.6 million for hedge funds.
    Ownership of alternative investments increases with an increase in wealth and decreases with increasing age.
  • Hedge funds receive more money from alternative investors than any other class of alternative investments, particularly from those with a net worth of US$25 million or more.
  • While 42 per cent of investors with a net worth over US$25 million own hedge funds, 69 per cent of investors with a net worth of US$125 million or more are invested in hedge funds.

alternatives higher rate of return diversified portfolio

Utilisation of alternative investments increases as wealth increases, and advisors should recognise the opportunity to introduce alternative investments as an investor’s net worth grows … Investors who find alternatives attractive are looking for a higher rate of return and a diversified portfolio of investments. – George H. Walper, Jr., President of Spectrem Group

Albeit the statistics are positive and are cause for excitement, many amateur investors struggle with finding their place in the alternative investment marketplace. In order to find the answer, investment-seekers must be acutely aware of how knowledgeable they are with regards to non-traditional investments, as well as truthful with themselves about what their tolerance for risk is.

Are You Investment Savvy?

Of those investors who considered themselves to be “very knowledgeable” about investments are more likely to have alternatives in their portfolio than those who do not (37 per cent versus 24 per cent). On the other hand, those who consider themselves only “fairly knowledgeable” about investing are more likely to not include alternative investments (61 per cent versus 53 per cent) in their portfolio.

What is Your Risk Tolerance?

Compared to other investors, those who are investing in alternatives are more likely to describe their risk tolerance as “aggressive” or “most aggressive,” than those who do not invest in non-traditional options.

In the study, 40 per cent of ultra-high net-worth investors who owned alternative investments, identified their risk tolerance as “aggressive,” compared with 39 per cent of those who describe their risk tolerance as “moderate,” and 11 per cent who reported their risk tolerance as “conservative.”

In Conclusion.

Investors who have carefully assessed the risk all of the more traditional opportunities for investment and have made the decision to begin to investigate the market’s niche alternatives, that have consistently demonstrated low correlation and strong returns despite a volatile and challenging economic times, have succeeded in diversifying their holdings, eliminating unnecessary risk and positioned themselves for long-term financial security and success.

Investors Invest To Avoid Risks Of Traditional Investments

Investors are shifting their focus (and money) to investments in nontraditional options that reduce their exposure to the risks of traditional investments.

With traditional investments – like stocks, mutual funds and bonds – consistently delivering poor performances year after year, and the world seemingly headed for financial and economic disaster, the global investment community is moving its focus (and money) to investing in nontraditional options that will shelter them from the repercussions of falling equities.

This move by global investors to avoid the risk associated with volatile assets, and instead invest in opportunities that preserve wealth, signifies the emergence of the independent, savvy investor that can identify the increasing risk in traditional markets and is adamant about seeking-out safer alternatives to protect their portfolio.

great depression milton friedman quote

The Great Depression, like most other periods of severe unemployment, was produced by government mismanagement rather than by any inherent instability of the private economy. – Milton Friedman

The age of the new, more savvy investor is characterized by a departure from traditional investing strategies that rely heavily upon advisers. Instead, this progressive approach is insistent upon transparency from an alternative investments provider, as well as maintaining “hands-on” management over individual portfolio assets. This more assertive strategy is appealing to investors who want more control over the outcome of their financial future.

Gone are the days when investors watched helplessly as their fortunes, being managed by complete strangers, rose and (mostly) fell daily. Nowadays, the investment community is embracing opportunities – like investing in containers, that offer tangible assets in industries that have historically performed well, and are not directly correlated with traditional market volatility. This has proven to deliver the portfolio diversification that today’s educated investors desire.

real estate investing to build wealth robert kiyosaki quote

Real estate investing, even on a very small scale, remains a tried and true means of building an individual’s cash flow and wealth. – Robert Kiyosaki

The greatest appeal of nontraditional investments is their ability to lower an investor’s exposure to the traditional investing strategies that have proven themselves to be too risky to provide the foundation of an investment portfolio. Although still representing a significant portion of investor holdings, stocks, bonds, and mutual funds are being complimented or replaced by alternative assets, such as investing in precious metals, gemstones, and shipping containers. These investments have proven to preserve investors’ wealth in times of financial and economic uncertainty.

Also among the hard assets that are growing in popularity and are increasingly recommended by industry analysts is real estate. Commercial property values in major cities like Hong Kong, London and New York have shown they can consistently hold their value, and that carefully chosen real estate investments can depended upon to deliver strong returns to investors; even in challenging economic times. Nowadays, the investment community knows better than to expect this type of positive performance from traditional stock market and/or bond investments.

diversification globalization key fujio mitarai quote

Diversification and globalization are the keys to the future. – Fujio Mitarai

Generally speaking, alternative investments can be found in sectors that promote and facilitate global growth and development of the international community, such as shipping containers’ contribution to world trade and technology’s increasing demand for silver. Investors should seek-out opportunities like these to ensure steady investing returns, and avoid the established risks associated with traditional investment offerings.