Alternative investments are financial assets that do not fall under one of the traditional investment categories. Stocks, bonds, cash are all examples of conventional investment categories. Alternative investments include venture capital or private equity, hedge funds, and managed futures. Alternative investments include real estate.
Understanding Alternative Investments
Because of their complexity, lack of regulation, and risk, most alternative investments are held by accredited, high-net-worth individuals or institutional investors. Alternative investments often have higher minimum investment and more complicated fee structures than mutual funds or exchange-traded funds (ETFs). This investment also has a lower chance of being advertised to investors and publishing verifiable performance data. Alternative assets might have higher initial minimums or upfront investment fees but transaction costs are generally lower than conventional assets because of lower turnover.
Alternative assets tend to be less liquid than their traditional counterparts. Investors will find it much more difficult to sell an 80-year-old bottle of wine than 1,000 Apple Inc. shares due to the limited number of buyers. Alternative investments may prove difficult to value because of the rarity of their assets and transactions. A seller selling a 1933 Saint-Gaudens Double Eagle $20 Gold coin might have trouble valuing alternative investments since the assets and transactions involving them are often rare.
Alternative Investments Regulation
Alternative investments, even if they do not involve art or coins, are vulnerable to fraud and investment scams due to the absence of regulations.
Alternative investments often have a more complicated legal structure than traditional investments. It is important that investors do extensive research before considering other investments. Alternative offerings may only be available to accredited investors in certain cases. Accredited investors can only be those who have a net worth of more than $1 million, not counting their primary residence, or with an annual income of less than $200,000 (or $300,000. combined with a spousal source). 5 Financial professionals with a FINRA Series 7 or 82 license could also be eligible to become accredited investors.
This post was written by All Seasons Wealth. At All Seasons Wealth, we provide expert advice and emphasize the importance of creating in-house portfolios to personalize your strategy for asset management, financial planning, and cash management. We utilize research and perform market analysis to provide you with the top financial advisors in Tampa. No matter your needs, we can work with you to develop a consulting solution tailored to you.
Any opinions are those of All Seasons Wealth and not necessarily those of RJFS or Raymond James. Investing involves risk and you may incur a profit or loss regardless of the strategy selected. Investing involves risk and you may incur a profit or loss regardless of the strategy selected. Every investor’s situation is unique and you should consider your investment goals, risk tolerance, and time horizon before making any investment. Past performance may not be indicative of future results.