Beyond Stocks & Bonds: Unlocking the Power of Alternative Investments

Diversify, Innovate & Maximize Returns in the most volatile market.

Picture from Strategic Wealth Partners official site.

The next few years is going to be rough. Not maybe. Not possibly. Will be.

World is moving towards a market crash and the coming yearswill be causing drastic effects on our lives.

Prices have already started climbing up the hill while paychecks shrink.

It has become much more important for us to be careful when it comes to our hard-earned money and no, I’m not talking about putting your money in those triple-security lockers from Godrej.

I am talking about some practical steps you can take to make your money work for you and you can build a long-lasting shield that protects you and your loved ones from the upcoming crisis attack.

Your money is meant to work for you and multiply in the long run. This is only possible through diversification.

You have likely heard of a “60/40 portfolio” — a portfolio that is composed of 60% stocks and 40% bonds.

The belief has been that when stocks lose their value, bonds should hold their ground or even appreciate in value, helping stabilize the portfolio during periods of market unrest.

Last year has been another proof point that this assumption is flawed. Stocks & Bonds are old news.

So, what’s new? Alternative Investments!!

What are Alternative Investments?

Alternative Investments refer to asset classes that fall outside the realm of traditional stocks, bonds, and cash.

Unlike traditional assets (stocks & bonds), alternative investments often exhibit lower correlation with public markets, making them an attractive option for portfolio diversification.

In simple words, change in the prices of stocks & bonds doesn’t effect the prices of alternative investments so, this works well for your portfolio.

Categories of Alternative Investments:

• Private Equity & Venture Capital — Private equity involves investing in privately held companies, often through buyouts or direct investments. Venture capital, a subset of private equity, focuses on funding startups and early-stage companies with high growth potential. These investments offer significant upside potential but also come with high risk and illiquidity.

• Hedge Funds — Hedge funds employ diverse strategies, including long-short positions, arbitrage, and leverage, to generate returns in various market conditions. They aim to deliver absolute returns, making them appealing to institutional and high-net-worth investors.

• Natural Resources — It comprise of raw land, land used for growing crops or timber. Raw land, farmland, timberland are all illiquid investments, and their value is primarily driven by location. Timberland requires specialized expertise. Investors who lack the expertise can invest through timberland investment management orgainsations (TIMOs).

• Real Estate— Investing in commercial or residential real estate provides income through rental yields and potential appreciation in property value. Real estate investment trusts (REITs) offer a more liquid alternative to direct property ownership.

• Infrastructure — Infrastructure investments involve funding essential physical and organizational structures such as transportation (roads, bridges, airports, railways), utilities (water, electricity, gas), telecommunications, and social infrastructure (hospitals, schools). These investments are typically long-term and provide stable returns, often backed by government contracts or regulated frameworks. Infrastructure Investment Trust (InvITs) offer a more liquid approach to such investments.

• Commodities — Investments in physical assets such as gold, oil, and agricultural products serve as hedges against inflation and market volatility. Commodities provide a store of value and often perform well during economic uncertainty.

• Cryptocurrencies & Digital Assets — The rise of blockchain technology has introduced digital assets like Bitcoin and Ethereum as viable investment options. While highly volatile, cryptocurrencies have gained traction due to their decentralization and potential for high returns.

• Collectibles & Alternative Tangible Assets — Fine art, classic cars, rare wines, and vintage watches represent tangible alternative investments. These assets hold intrinsic value and often appreciate over time, though with market-specific risks.

Compared with traditional investments, alternative investments typically require more specialized knowledge of investment managers.

Assets held tend to be less liquid, making alternative investments appropriate for investors who have long time horizons and can commit large amounts of capital but options like REITs, InvITs & TIMOs makes it easy for an investor with low capital like myself to invest in alternative investments.

Disclaimer: Above discussed investments are not my recommendations for anyone. Alternative Investments requires expertise and you should invest in such categories when you possess the detailed knowledge about it.

One of the primary benefits of alternative investments is their ability to provide stability during market volatility. Unlike traditional stocks and bonds, which are often affected by economic downturns, alternative assets tend to be less correlated with market fluctuations.

Characteristics of alternative investments makes them an essential component of a well-balanced investment strategy, allowing investors to mitigate risks and maintain steady returns even in uncertain times.

Moreover, assets such as gold and real estate have historically served as safe havens, preserving value during financial crises.

Alternative investments often provide enhanced returns due to their exposure to unique opportunities and inefficiencies in private markets.

Thank you for reading my thoughts and as always, rooting for you from afar!