As you begin to think about adding alternative investments to your portfolio, you should begin thinking about what that will entail. There are so many different options in this asset class, and it can be difficult to see through the "clutter" of the myriad options available to you. Some of the legitimate opportunities, including venture capital, real estate, and precious metals are only a fraction of what is available. You may be struggling with organizing the wealth of information and offerings. The following are some guidelines to keep in mind when considering alternative investment options:
Before deciding to choose an alternative investment, investors need to think about what role that asset will play in their investment portfolio. You want to add alternatives that will increase your wealth while also reducing risk. If you have gaps in your portfolio, think of something you enjoy that you might like to add. Take care not to add an alternative simply because you read about it in a newspaper or saw it on television. Your choice should come down to what your portfolio needs and your own personal interests.
No investment is one-size-fits-all. Therefore, it is vital that each of your alternative investments is evaluated individually. Don't look at real estate the same way you would film finance companies. Each category of investment should be considered based on characteristics of each asset class.
Many investors choose their alternative investments based on their liquidity. Clients who have smaller portfolios may fare better with publicly traded alternatives. This is because you may want to have access to cash in the event you run into an emergency or other issue in which you would need access to your funds. Those with a portfolio worth over $5 million may have a better opportunity for direct private placement because the need for liquidity is not as great. In this instance, in order to get the best return possible, it would be most beneficial to invest in a riskier investment that doesn't mature until years in the future. If your net worth is in the millions, you likely won't need access to this investment for some time.
The alternative investment niche can often be wrought with fraud. Because of this, there is a need to be very diligent when researching different investment options. It is important that you understand how to research correctly. Don't rely on opinions that match your own; instead, look for objective sources to determine what would be smart alternative investments for your portfolio.
Because alternative investments are is so broadly defined, it is important to exercise full caution before jumping into an investment of this nature. Adding a fund that invests in a variety of categories is an ideal way to get involved with this asset class. Choosing a fund that is managed well can cast a wide net throughout the entire alternative investment space.
The definition of alternative investments can be very broad and are meant to move independent of the main sectors of your portfolio. Keeping these five tips in mind when you are selecting alternative investments will help you clearly see what option will work best to improve your portfolio. For more information, contact firms like Family Financial Partners.