Investors seeking to diversify their portfolios and generate higher returns and increasingly turning to alternative assets. This is unsurprising in light of returns that can go far into the double digits in art or real estate investing.
Investing in alternative assets for diversification
The term alternative assets refer to investments that fall outside of the traditional asset classes of stocks, bonds, and cash. They can include a wide range of investments such as art, startups, real estate, private equity, hedge funds, commodities, and more. In this article, we will focus on how alternative assets such as art, startups, and real estate facilitate valuable portfolio diversification.
Anyone can now own a Picasso
Art has been a form of investment for centuries, and it has gained a lot of traction in recent years. Innovators, such as Masterworks, are letting private investors own fractional shares in multimillion dollar artwork. Anyone can now own a piece of a Picasso or Warhol starting at $3,000.
Art is a very resilient asset class
Art can be a good investment for those who have a passion for it, but it can also be a good diversification tool for investors who are looking to add alternative assets to their portfolio. The art market has shown resilience in time of economic uncertainty on numerous occasions over the centuries.
Art gives investors shelter from market volatility
Art is a unique asset class because it is not correlated to the stock market. This means that its value is not tied to the performance of the stock market, making it a good diversification tool. Investing in art can provide investors with a hedge against inflation, and it can also provide tax benefits. Fine art was historically reserved for the ultra-wealthy. No more.
Illiquidity is no longer an issue
One of the challenges of investing in art is that it can be a very illiquid asset. It can take time to sell a piece of art, and the market for art can be very unpredictable. Masterworks has solved this disadvantage by providing secondary market trading in multimillion dollar paintings.
These are our top picks for investing in Art.
Investing in Real Estate
Real estate is a tangible asset that provides passive income that can go well into the double digits. A real estate portfolio itself can be very diversified, made possible by minimum investment threshold of $5,000. Real estate can include everything from commercial properties to residential properties to raw land. Real estate can provide investors with a hedge against inflation, and it provides a steady stream of income through rental income.
Real estate reduces portfolio beta
Like art, real estate can protect investors from market swings because real estate is not correlated to the stock market. Additionally, real estate has the potential to generate high returns. According to a study by the National Council of Real Estate Investment Fiduciaries, commercial real estate generated an average annual return of 9.9% over a 20-year period.
Blockchain technology is solving the issue of illiquidity
One of the challenges of investing in real estate is that it can be a very illiquid asset. It can take time to sell a property. However, innovators, such as Honeybricks are working on solving this issue by providing a secondary market for holdings by leveraging blockchain technology.
Still, building a real estate portfolio that is diversified by type of real estate, market and target return is the key to long-term success.
These are our top picks for investing in Real Estate.
Investing in Startups
Startups are another alternative asset that investors can consider adding to their portfolios. Startups are private companies that are in the early stages of development. Investing in startups can be a high-risk, high-reward proposition, but it can also provide investors with the opportunity to invest in the next big thing. Platforms, such as RaiseGreen enable investors to combine return with positive impact.
The potential for big gains
The value of a startup is not tied to the performance of the stock market, making it a good diversification tool. Additionally, startups have the potential to generate high returns. According to a study by the Kauffman Foundation, angel investors (individuals who invest in startups) generated an average return of 2.5 times their investment over a four-year period.
Beware of the risks.
One of the challenges of investing in startups is that it can be a very risky proposition. Most startups fail, and investors can lose their entire investment. Additionally, investing in startups requires a lot of research and due diligence. Investors need to make sure that they are investing in a startup that has a strong business model, a talented management team, and a viable product or service.
These are our top picks for investing in Startups.
In conclusion
In conclusion, investing in alternative investments can offer a wide range of benefits to investors. Alternative investments provide diversification, which can help reduce overall portfolio risk and increase returns. They also offer opportunities for higher returns compared to traditional investments, such as stocks and bonds. Additionally, alternative investments can offer a hedge against inflation and economic downturns.
Alternative investments come in many forms, including real estate, private equity, hedge funds, commodities, and art. Each alternative investment has its unique characteristics and risks, so it is essential to conduct thorough research and due diligence before investing.
Overall, alternative investments can be a valuable addition to a well-diversified investment portfolio, offering potential for higher returns and lower risk. However, investors should carefully consider their financial goals and risk tolerance before making any investment decisions.
Disclosure
In some cases, we may get compensated by companies featured in this article. Remuneration by these partners helps us sustain the team that is hard at work to provide you with a complete solution for all your portfolio management needs. We carefully review partner products for accuracy and quality but do not provide any guarantee for the accuracy and quality of these products. We are not an investment advisor, nothing in this text is to be construed as investment advice.