Alternative investments are becoming more and more common in the portfolios of investors. However, alternative investment strategies have suffered from a few myths that just aren’t true. In this article we’ll discuss some of these myths and how you can use them to your advantage.
Myth: Alternative Investment strategies are more risky
You’ve probably heard that alternative investments are riskier than traditional ones, but that’s not always true. “Alternative Investments and ‘traditional investments’ are both all-encompassing terms,” says Henry Yoshida, CEO of Rocket Dollar. “Alternative Investments such as real estate or private credit are typically much more conservative, income-oriented investments while some ‘traditional investments’ such as highly volatile, thinly traded public companies are considered very risky investments.
I think most financial advisors and individual investors would agree that tangible real estate is a more conservative investment than a thinly traded micro-cap publicly traded stock.
Myth: Alternative Investing is a fad
The reality is that alternative investments have been around for decades, and they’re not just for the wealthy. As an investor, you have to be willing to think outside the box when it comes to your portfolio. Alternative investments can help diversify your portfolio by providing more balance between risk and reward, plus they provide access to markets that aren’t easily accessible through traditional investments.
There’s also an element of contrarianism at play here: If everyone else is doing something, then maybe that thing has reached its peak value and it’s time to look elsewhere—and so on. It’s important not only to look at what other investors are doing but also why they’re doing it in order to make sure your own strategy isn’t based on groupthink or herd mentality (which could lead you astray).
Myth: Alternatives are too illiquid for my investment goals
In truth, alternatives can help you meet your investment goals. What’s more, they can help you meet your time horizon and risk tolerance as well. Alternatives can also be used to meet your liquidity needs if those are important considerations for you. Finally, alternatives offer tax efficiency benefits that may appeal to investors who care about these things—and it’s always good to know that an alternative investment is available when another option might be better suited for meeting a particular financial goal or requirement in the future.
Alternative investments can help improve your portfolio’s risk-adjusted returns.
Many investors have a long-term goal of investing for retirement, but it’s hard to know where to start and how much you need to save on the front end. A good way to meet those goals is by diversifying your portfolio with alternative investments. These investments can offer opportunities for higher returns that may not be available in traditional assets such as stocks and bonds. They also offer some protection against market volatility because they’re often less correlated with traditional assets than other alternatives like real estate or precious metals.
We hope this post has helped to dispel some of the myths surrounding alternative investments. To learn more about individual classes of alternative investments, please visit our alternative investments hub, and to learn more about investing in alternatives with your IRA, please reach out to our sales team.