Why There’s a Case for Diversified Investments in Today’s Markets
Everyone has specific goals and reasons when they invest; however, the one common denominator is achieving a level of financial security. With this goal paramount to many, you must consider the best strategy for achieving it. With diversified investments, you are choosing a reliable approach to obtaining those long-term monetary goals. We forget very easily what a down market or sideways market feels like.
After coming off a twelve-year bull run, investors are beginning to experience “sticker shock” when they open their statements. Alternative investments, also known as asset-backed securities, are used widely by pension funds, insurance companies, college endowments, and large institutions.
These types of investments do not share a correlation to the market, help diversify investors into different asset classes, and provide the opportunity for income and back-end growth while being invested. Moreover, in today’s market conditions, investors can incorporate these styles of investments to help potentially hedge volatility and enhance their portfolio’s returns.
What Makes Diversified Investments a Smart Play
Diversifying your investments gives you a balanced approach with minimized risk. The traditional sense of diversification typically followed a blend of stocks, bonds, and cash. You can further diversify those asset classes by sector, company size, risk, and geographic location. We learned in 2008-09 and are learning today that this doesn’t always take away the pain of market risk. In a world with a potential recession, rising interest rates, and high inflation, the market loses many places to hide and “protect” itself.
Alternative investments, or asset-backed securities, allows us to add that fourth avenue for diversifying an investment portfolio. These assets can complement your portfolio with a focus on growth, income, or a mix of both. In addition, it helps take some assets away from the stock market and expose them to investment opportunities that complement their overall investment strategy. These investments are non-correlated and can be illiquid but also allow investors not to see their investment value decrease with the stock market or react emotionally to sell.
Ask Your Financial Planner About Ways to Access Alternative Investments*
Alternative investments come in all shapes and sizes. As we stated earlier, these investments can be growth-oriented, income-focused, or share a mix of both. The main attraction to these investments is that tangible assets (most often real estate) are behind them, providing value to investors. As these assets are acquired and investment strategies implemented, investors are now exposed to a new avenue of investing in their portfolios. Below are just some examples of different investments that are available to investors:
- Non-Traded REITs
- Perpetual NAV REITs
- Value Add Multifamily
- Developmental Real Estate
- Opportunistic Real Estate
- Delaware Statutory Trusts
- Core+ Real Estate
- Preferred Note Positions
- Oil & Gas/Mineral Right Investments
Everything in Moderation
When you sit with your financial planner to discuss which ones to incorporate, keep your short and long-term goals in mind. Without proper advisement and monitoring, you may risk over-concentrating your investment portfolio. Warren Buffet famously said, “Wide diversification is only required when investors do not understand what they are doing.”
With that in mind, it is essential to be sure your financial advisor is constantly vetting and assessing every asset in your portfolio. Then, ensure it still aligns with your investment goals and adjust if necessary.
Interested in discussing a new approach to your investment strategies? Contact us today to request a consultation!
*Please note that some of the investments referenced may have income and net worth restrictions to participate. Some of these programs require investors to be accredited. Some states may offer limitations on how much one may invest*