Here’s what you need to know about alternative investments before you buy

Financial Advisors


  • After a tough year for stock and bond markets in 2022, some advisers are turning to alternative investments, according to new research.
  • Investors are attracted to diversification, which reduces portfolio risk and increases returns.
  • However, some of the tradeoffs may include complexity, lack of liquidity, and increased fees.

After a tough year for stock and bond markets in 2022, some advisers are turning to alternative investments, according to new research from the Financial Planning Institute.

Nearly 30% of advisors are actively investing in or seeking alternative investments for their clients, according to the survey. These assets are generally excluded from traditional investments such as listed stocks, bonds and cash.

Ashton Lawrence, director of Mariner Wealth Advisors and certified financial planner in Greenville, South Carolina, said some investors are attracted to alternatives that diversify, de-risk their portfolios and increase returns. said that

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In fact, according to the FPA survey, “diversification” and “risk reduction” are the top objectives among advisors recommending alternatives.

However, risks and returns vary, and many assets fall under the umbrella of “alternatives,” including hedge funds, private equity, “real assets” such as real estate and commodities, and packaged investments known as “structured products.” fits in.

“The big thing for me is to do thorough due diligence,” Lawrence said, understanding the product, why you buy it, and how it fits in with the rest of your portfolio. He pointed out the importance of understanding how it fits.

The FPA survey found that while some advisers recommend alternatives, nearly 30% are “accustomed” to alternatives but take workarounds.

For many advisors, the biggest obstacle, especially amid economic uncertainty and rising borrowing rates, was the “lack of liquidity” in certain products.

That risk is poorly understood by many investors, explains Chris Melone, CFP and partner at VLP Financial Advisors in Vienna, Virginia. “Some of these funds are very difficult to withdraw.”

Fees and costs are also an issue for alternatives, Lawrence said, with certain products tending to cost more. “If there’s value in it and you can justify the expense, then you shouldn’t be particularly frustrated,” he said.

“But if you’re just paying for expensive money market funds, you’re probably better off finding another strategy,” Lawrence added.

Private equity is the top alternative asset category in the FPA survey, but other advisors don’t think private equity is right for their clients.

“the best [private equity] Trading is something that is never accessible,” said Matthew McKay, CFP at College Station, Texas-based Briaud Financial Advisors, who said most clients can’t compete with the richest investors. Stated.

Alternatively, McKay’s firm focuses on “funds of funds” that act as general partners by investing on behalf of 100 clients in a single transaction.

“All things considered, we are more than enough,” he said. “This is where a lot of retailers are accessing funds.”



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