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Alternative Assets Explained

May 27, 2021

Thinking about diversifying your portfolio? When most people think about investing, they typically consider traditional investments. But Investments are not just limited to stocks and bonds. Alternative assets are becoming increasingly more available and are a unique way to diversify your portfolio. They offer a variety of advantages and interesting opportunities for investors.

What are alternative investments?

Alternative assets, also known as alternative investments or alts, are less traditional and becoming known as one of the most dynamic asset classes. They cover a wide range of assets that fall outside of traditional investments.

Unlike traditional assets, which are publicly traded stocks, bonds, mutual funds, or ETFs, alternative assets include a broad range of opportunities. They include:

  • Real estate, including limited partnerships, development corporations, investment trusts (REITs), and directly owned property;
  • Private Equity, including venture capital, growth capital, and buyouts;
  • Private Debt, such as investments that are not financed by banks or traded on an open market;
  • Intellectual Property, such as patents, song rights, copyrights, and trademarks;
  • Commodities, including precious metals, oil and gas, and other resources;
  • Art and collectibles;
  • Hedge Funds;
  • Annuities;
  • Derivatives.

Alternative assets can also come in different forms of investment vehicles. They may include direct exposure, with the ability to invest directly into an asset, or as a fund, where you can indirectly invest in one or many alternative investments.

How alternative investments have changed

Alternative investments are becoming one of the fastest-growing asset classes, and the air of exclusivity is fading. Historically, little was known about alternative investments, and they were difficult to invest in. Due to the accessibility to private markets, the barriers were high for an individual investor, and in some cases they were not even available to individual investors.

But things are significantly changing. With emerging global economies, investors are now looking for opportunities that are not tied to the correlation of the market. And with the success of these emerging markets, investors are hungry to invest. New platforms are enabling the ability for trading alternative assets, and while investors may not find liquidity of a particular asset through these platforms, they are giving way to the potential of active marketplaces where liquidity could be found.

With new SEC regulations and advent companies like Securitize, alternative assets are becoming more accessible for individual investors to invest and trade.

Reasons to consider alternative investments

When it comes to asset allocation, diversification is considered a key to managing a portfolio. Alternative investments offer more exposure to a broad range of assets and provide opportunities to create a balanced portfolio.

Some types of alternative assets are also viewed by many as a method to generate passive income, such as REITs, which can offer passive income generated in the form of rental payments and capital appreciation potential. REITs are a way for investors to own equity in real estate without taking on the management of properties. The benefit of alternative investments opposed to the physical form of an asset, such as a piece of real estate is that not everyone wants the administration and management burdens that come with owning real estate. And since REITs must pay 90% of income to investors, they offer investors a solid way to generate cash flow.

As with any investment, you should be fastidious in your due diligence and carefully research the potential risk before making a decision.

How do I start investing in alternative investments?

Securitize Markets currently provides the opportunity and access for all investors to buy into alternative investment, the ability to sell your alternative investments to other investors through the Securitize Secondary Marketplace. To learn more, visit the Invest section on our website.

Contributing Writers: Michael Penfield, Christie Olsen

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