Diversifying with Alternative Investments

Investors have long used diversification as a risk mitigation strategy, but it’s been only recently that individual investors have been able to diversify as much as institutions and family offices historically have. Advancements in financial technology now give individuals the same access to alternative investments that institutions and family offices have held in their portfolios for decades.

Alternative investments, such as commercial retail real estate, are an excellent asset for most individuals to diversify with because they add variety in a number of ways.

First, alternative investments are in an entirely different investment class than stocks, bonds and mutual funds, which is why they’re called “alternative.” For individuals whose portfolios are frequently heavily exposed to stock-market swings, having capital in another asset offers new opportunity and tempers market downturns.

Second, many alternative investments are even a different type of asset than what individual landlords normally invest in. The commercial real estate market operates differently than the small residential market that most individuals first invest in when exploring land or building assets.

Third, investing in multiple alternative investments reduces the chance of any single one negatively impacting a portfolio too much. Just as individuals often buy multiple stocks, bonds or mutual funds, people can now also make multiple small investments into large alternative assets (see below).

Fourth, accumulating these assets over time and investing in ones that have different hold periods both help protect against unexpected fluctuations. It’s easy to vary the vintages within a portfolio when investing in these assets, for new opportunities are constantly becoming available and they each have their own time frame.

 

Bringing Opportunities to Individuals Through Fintech

For most of modern history, individuals haven’t been able to invest in alternative investments because the initial buy-in has been prohibitively high. Only institutions and family offices could afford the upfront costs. Advancements in fintech has changed this, though.

Substantial investments have been required because the management of these assets has been complex and resource-consuming. Even simple items, such as keeping investors informed, took up a lot of time. Increasing the number of investors that needed to be informed of an asset’s performance and changes would doom the investment from the outset because too many resources would be needed.

The fintech revolution has changed the industry, however, so that individuals can now be included in these types of investments. Because online platforms now make it possible to view accounts, deposit funds, manage investments and perform other actions via the internet, the resources required to manage assets and coordinate investors has been greatly lessened. Therefore, the initial investment that’s needed can also be reduced to a level that individual investors can afford.

Not only can individuals get into alternative investments, but they can make smaller investments more frequently — thereby also taking advantage of the diversification that comes with investing in multiple assets in different years and that have different hold periods.

The Marcus family has been successfully investing in alternative investments for almost 85 years, and they’re now excited to bring these opportunities to individuals. To learn more about minimum investment requirements, returns and diversification opportunities, contact one of the professionals at Marcus Investments.

 

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