Misconceptions on Alternative Investments
With close to 2 in 5 Americans being interested in alternative forms of investing and while interest in alternative investments are on the rise, many still don’t know where to start.¹ Yet, nearly 81% of ultra-high-net-worth Americans make their wealth through alternative investments.² There are many misconceptions about alternative investing that can oftentimes deter the average potential investors from dipping their toes in. In this blog, we will dive into some of the misconceptions around alternative investing in order to shed some light on how simple it can be to get started.
Misconception 1: They are complicated to get involved in
A lack of communication as well as a lack of knowledge can oftentimes inhibit people from getting involved in alternative investments.
Although it is important to do your research on liquidity, diversification and return, this information is often fairly simple to obtain. In some cases, the availability of information for some alternative investments can be hard to obtain, which can give investors a feeling of non-transparency.
Misconception 2: Alternative investments are too risky
Risk is certain in any kind of financial investment, and when higher returns are expected, higher risk should also be expected. Although alternative investments compared to traditional holdings may be viewed as more risky because of their lower liquidity and higher targeted returns, when they are a part of an overall portfolio, the investment risks may be more modest. Investments that are more market-neutral are also meant to lower overall portfolio risk, which makes alternatives an attractive source of diversification and return potential. Of course, there are always going to be potential risks associated with the unregulated structure of many alternative investments.
Misconception 3: Alternative investments aren’t a necessary part of a portfolio
Some investors assume alternative investments are not relevant to their portfolios and are not worth the risk, when in reality, alternative investments can be a source of new opportunities for investors. By adding alternatives to their portfolio, especially during times of uncertainty, investors may be able to increase diversification, reduce their overall risk and enhance portfolio performance.
Misconception 4: Alternative investments are reserved for institutions and for high-networth individuals
In the past, this misconception may have very well been true, as access to education and knowledge surrounding alternatives was not widely available to the masses. However, with the rise of alternatives such as real estate, crowdfunding, cryptocurrencies, and so on, there is an abundance of information available. Especially with the rise of alternatives that offer a low barrier to entry, such as Connect Invests Short Notes, there are many options available even for those who are new to investing and may have a lower tolerance for risk.
Although it is true that some types of funds are restricted to accredited investors or qualified purchasers, there are many options that exist that provide access to alternatives without those restrictions; It is no longer necessary to simply dismiss alternatives as being an exclusive investment for institutions and investors.
Misconception 5: The illiquidity of alternative assets is a downside
This misconception is a big deterring factor for investors who are considering alternatives with the assumption that their money will be stuck in this type of investment for prolonged periods of time. Although there are some examples of this being true, like certain hedge funds that offer alternative portfolios that lock investors’ funds in for 5 to 10 years, there are many options available that are both liquid and illiquid versions of alternative investments.
Something like investing in Real Estate Short Notes, for example, can earn high-yielding monthly passive income with investments starting as low as $500 and commitments as short as 6 months.
Alternatives are a great way to diversify your portfolio and create passive income, with a broad range of options available to all investors. Sign up with Connect Invest to learn about even more diversification opportunities, such as Short Notes that are diversified among multiple real estate projects and loans to reduce the risk for investors. Considering alternative real estate investment opportunities, like those that Connect Invest offers, can further diversify your portfolio and let you continue to build wealth.
¹Voigt, K. (2020, August 26). Many Drawn to 'Alt' Investing, Survey Finds, but Risks Await. NerdWallet. Retrieved May 6, 2022, from https://www.nerdwallet.com/article/investing/many-drawn-to-alt-investing-survey-finds-but-risks-await
²Caporal, J. (2021, August 26). 81% of Ultra-High-Net-Worth Individuals Use Alternative Investments. The Motley Fool. Retrieved May 6, 2022, from https://www.fool.com/research/high-net-worth-alternative-investments/