Understanding Alternative Investments: Are They Right for You? 

This article is a paid partnership with Sera Capital. The content was provided by the advertiser and is published for informational purposes only. Alternative investments are complex and may not be suitable for all investors.

The 60/40 portfolio has been a trusted investment strategy for decades. However, the traditional blend of stocks and bonds may not be enough to secure your financial future, as today’s economic conditions call for something more diverse.

Savvy investors hoping to strengthen their portfolios may be able to find opportunities by looking beyond stocks and bonds, opening a new door to long-term wealth. Alternative assets are less influenced by public markets, offering a valuable buffer during financial downturns, thereby reducing your portfolio’s volatility. 

The Core Benefits of Alternatives for Modern Investors

Alternative investments are a more varied category of assets that can help you build a resilient portfolio.

According to a report, integrating alts into the traditional 60/40 portfolio increased the final value by 23% and reduced volatility.

Depending on the alts you opt for, you could protect your assets from inflation. For example, when the costs of essential goods and services increase, your tangible assets tend to rise as well, safeguarding your long-term purchasing power. 

You can tap in to unique growth opportunities you cannot find on public exchanges when you opt for alternatives. Although it usually demands lower liquidity, if you remain patient, the rewards are worth the wait. 

Note: Some industry research has suggested that diversification strategies incorporating alternatives may reduce volatility in certain market conditions, though results vary widely and past modeling does not guarantee future outcomes.

5 Alternative Investment Paths Worth Exploring

In today’s volatile markets, securing your wealth is important, which is why you may want to explore different alternatives to diversify your portfolio.

These five investment options may be a strategic move for you.

1. Real Estate Crowdfunding and REITs

Real estate investment trusts (REITs) and crowdfunding platforms are for those who want to invest in property assets without becoming landlords. REITs own and operate income-generating real estate. Buying shares in a publicly traded REIT gives you the liquidity of a stock and access to broad property portfolios.

Conversely, real estate crowdfunding allows you to invest directly in specific properties alongside other investors. However, there are higher minimum investment requirements — usually close to $5,000, but sometimes at or below $500. Additionally, some platforms require you to be an accredited investor. 

2. Private Equity

Private equity allows you to invest in companies with high potential well before they gain widespread popularity or become publicly traded. It essentially allows you to get in on the ground floor of what could be tomorrow’s most prosperous businesses.

This investment option is typically open to accredited investors: those with a net worth of over $1 million or an annual income of over $200,000 for two years. This is mainly due to the uncertainty, complexity and lower disclosure conditions associated with it. There are also very high minimum investment mandates, from a few hundred thousand to millions of dollars.

3. Private Credit

Private credit allows you to become the lender. Rather than purchasing a company’s stock, you provide a loan directly to the business and receive regular interest payments in return. It is an effective way to achieve continuous and predictable earnings, oftentimes higher than typical government and corporate bonds. 

With banks facing more stringent lending rules, private credit funds provide capital for midsized businesses to grow, make acquisitions or fund operations. It is an ideal investment opportunity for those who are comfortable with lower liquidity. 

4. Delaware Statutory Trusts 

A Delaware Statutory Trust (DST) allows investors to purchase a fractional interest in a large, high-value and professionally managed property that they usually would not be able to access, such as a medical facility or distribution center. With this strategy, they are eligible for a 1031 exchange, which enables the investor to delay paying capital gains taxes on the sale of prior commercial and investment property.

DSTs are not for everyone. Knowing the difference between independent vs. sponsor-aligned DST advisers is the first step to making the best investment decisions.

5. Commodities

Commodity investments involve investing in raw materials that fuel the global economy. These materials may include precious metals, agricultural products, oil and natural gas, domestic and foreign currencies, and other traded goods in the futures market. 

Investments in commodities often act as a cushion against inflation, as many of these goods rise with the cost of living. However, the markets are known to fluctuate as global events, supply chains and weather conditions create risk. The approach is best suited to savvy investors with strong market literacy.

Are Alternatives a Fit for Your Financial Goals?

You must evaluate your personal financial situation before pursuing alternatives, particularly your risk tolerance. Because many alts are more volatile and less liquid than stocks, you must be comfortable with slow and uncertain returns. 

And, think about your investment timeline. With alternatives, you usually have to commit for five to 10 years, in which case your money will remain tied up. Determine if this is the right path for you by asking yourself what your liquidity needs are, how much risk you can handle and whether you can afford to let go of immediate funds.  

The Importance of Specialized Guidance in Alternatives

Alternatives are a highly sophisticated investment strategy that requires expert wisdom from an adviser who can navigate challenging terrain, especially when it comes to investment tools like DSTs. Leveraging a platform such as Sera Capital delivers unbiased guidance by comparing various sponsor-based offerings.

Choosing between independent vs. sponsor-aligned DST advisers is essential. Whereas a sponsor-aligned adviser might only show you investments from one company that they work with, an independent one may provide options from the entire market. 

Sera Capital allows advisers to compare multiple DSTs from various sources. This transparency ensures that you see the whole picture and can make the wisest investment decision possible for your goals. 

DSTs are often complex and not publicly traded, meaning you will likely struggle to evaluate them on your own. An expert will conduct due diligence for you and assess the risks and long-term commitments to determine if it is a positive financial strategy for you.

The New Frontier of Personal Finance

As the investment landscape evolves, alternatives provide a way to secure wealth through portfolio diversification. Navigating this frontier requires inquisitiveness, thorough research and a commitment to grasping the fundamental principles.

As with any investment strategy, alternatives should be evaluated carefully and discussed with a qualified professional.

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