The beginning of 2020 has been marked with extreme market volatility and mounting investor concerns amid the coronavirus pandemic and resulting economic slowdown. Investors are more tuned in than ever to the impact headlines have on their portfolios and long-term financial health.
The extent of the current pullback on the markets and economy remains unclear. One thing that is clear: it is wise for investors to consider options to diversify their holdings and help them weather the market’s ups and downs. Alternative investments – like real estate, private equity, crowdfunding and more – are a great way to achieve this goal. Here are three reasons why investors should consider alternatives, particularly in the current environment.
1. Low correlations to traditional asset classes. Alternative investments have low correlations to traditional asset classes, including stocks, bonds and ETFs. Because alternative investments are typically not traded on an exchange, their values are not tied to the market. This helps shield investors from market volatility.
2. Potential for higher return. Although there could be more risk involved with investing in alternatives, there is the potential for higher return over the long term. If you do your homework and buy at the right price – and with a little luck – the long-term potential could be very compelling.
3. Reduced exposure to volatility. Investors who are in alternatives are less exposed to larger market risks, and therefore see lessened volatility risk as is typically associated with the larger markets. Investors still clearly remember the impacts of the 2008 financial crisis and more investors are beginning to see the impacts of the COVID-19 pandemic. The previous financial crisis prompted investors to take a greater role in their retirement portfolio. Many saw alternative investments as an option to do so.
The benefits of investing in alternative investments are accentuated when doing so via a self-directed IRA (SDIRA), including investing with a tax-advantaged IRA, as well as access to a wider range of alternative asset classes under a single custodian. As the universe of available investments grows, investors see new opportunity through alternative investments.
Now is a good time to speak to your advisor about how you can gain a competitive edge and add alternative investments to your portfolio.
Disclaimer: The information provided herein does not, and is not intended to, constitute personalized financial or legal advice. The contents of the article are for general informational purposes only and should not be relied or acted upon without specific professional legal or financial advice, based upon an individual’s situation.