Why Alternative Investments Need to Be Integral to Your Portfolio Diversification Plan

alternative investments archer investors

Investing in the 21st century can be daunting. Even 100 years ago, you only had a handful of investment instruments, which included land, stocks, bank accounts, and inventions. Today, we still have those options; however, the investment instrument field has skyrocketed, leading to hundreds of possible places for you to put your money. From derivatives and futures to cryptocurrency and gold mines, there’s an investment opportunity out there for everyone. This leads us to the question of which investment instruments do you choose?

Archer Investors specializes in offering investors 1031 Exchanges and Delaware Statutory Trusts (DSTs). We advise investors on real estate investments on any scale, small or large. We love the advantage of DSTs as a “hands off” real estate investment opportunity, and we appreciate the advantages of a 1031 Exchange for real estate investors who are just looking to defer capital gains taxes. We are also experts at helping you diversify your investment portfolio to meet your goals. In this blog post, we’ll explore alternative investments, including real estate investment opportunities, and why they play such a crucial role in your portfolio diversification needs. Contact us today to get started!

WHAT ARE ALTERNATIVE INVESTMENTS?

Alternative investments are an alternative to the mainstream or conventional investments (stocks, bonds, money markets, cash, etc). Alternative investments tend to be more complex in nature and are thus not as popular with investors. They also tend to carry more risk, which contributes to their lack of popularity.

However, in the world of investing, you are not trying to win a popularity contest; instead, you are trying to beat the system so to speak, which means trying to maximize your return on investment (ROI) with as little risk as possible. In order to truly maximize your ROI, you have to diversify your portfolio, which means invest in many different types of investments. In order to diversify your portfolio for the max potential, you need to invest in alternative investments and commercial real estate investing.

Alternative investments include:

  • Real estate
  • Precious metal
  • Commodities, such as oil and gas
  • Hedge funds
  • Venture or private capital
  • Investment in startups
  • Tangible assets, which include real estate and oil, but also include collectors items, antiques, artwork, baseball cards, etc. These items have value because humans themselves value them
  • Fund of funds
  • Private placement debt
  • Tax lien certificates
  • Intellectual property, such as copyrights and patents
  • Structured settlements
  • Peer-to-peer lending
  • Annuities
  • Tax credits
  • And so much more

As you can see just from this partial list of alternative investments that there are so many options that it can be dizzying. This is why partnering with a great financial planner or investment advisor, such as Archer Investors, can help you get on the right path to meet your goals and help you with your real estate investment strategy. Contact us today to get started!

WHY YOU NEED ALTERNATIVE INVESTMENTS IN YOUR PORTFOLIO

Diversification is the idea in investing of allocating your money to different types of investments. Your risk factor, or how much risk you can bear, plays a role in the proportion of allocations. The biggest factor in your risk factor is how old you are. The younger you are, the more risk you can tolerate because you have more time to make up for losses. The older you are, the less risk you can tolerate because you have less time to make up for losses. That being said, there is wiggle room as well in your risk factor. For example, you could be a person who tolerates more stress than others and is okay with riskier ventures. Thus, determining your risk factor is very personalized and can depend on many variables.

All that being said, you now need to sit down and decide how to allocate your assets within your investment portfolio. Keeping your risk factor in mind, you’ll want to list out your current investments and classify them as either traditional (sometimes called safe investments) or alternative. You’ll also want to list the proportions as well. For example, if all of your money is currently sitting in your savings account, then you have 100% of your assets in safe investments. If you’ve spent all of your money on a piece of property, then you have 100% of your assets in alternative investments. The goal of allocation is to put the correct percentage into each, based on your risk factor.

Next, now that you know how much of your money is in which types of investments, it’s time to rearrange some money based on your risk factor. If you want 60% of your money into riskier investments with higher possible rates of return, then you need more alternative investments. The other 40% can stay in safe investments, such as bonds and T-bills.

Now take a look at your 60% of your money that you want in riskier investments. Where is it sitting? Is it all in one place, such as that piece of property you just bought on the lake? If so, then you’ll need to diversify the money in your alternative investments. Because if the value of land drops and you can’t sell it, you won’t have money when you need it, and you will have lost some as well.

Diversification is key when it comes to managing your money. You need enough safe and liquid investments for emergencies, and truly the rest should be in more riskier investments, such as alternative investments for your property investment strategy. Contact Archer Investors for more details!

CHOOSE ARCHER INVESTORS FOR YOUR ALTERNATIVE INVESTMENT NEEDS

Archer Investors specializes in 1031 Exchanges and Delaware Statutory Trusts (DSTs). DSTs are becoming more popular as alternative investments as investors realize the benefits of owning them. DSTs allow you to invest in huge properties with no management responsibilities. In essence, you are securing a fractional ownership of the trust, which in turn holds real estate property. Investors are called beneficiaries of the trust. In the eyes of the IRS, you are the direct owner of the property, which allows you to then use DSTs as a 1031 Exchange. A 1031 Exchange is part of the tax code that allows someone who sells real estate to defer capital gains tax if that money is reinvesting in real estate.

Legally, there is one owner of the property, the DST. It is managed by a trustee who makes all of the decisions. DSTs allow for many investors, which thus diversifies your individual risk in terms of money exposed. You have limited liability and protection from bankruptcy, meaning all you can lose is the amount you put in, and if someone in the trust declares bankruptcy, you are not liable for their debt.

DSTs offer individuals a chance to own a piece of multi-million dollar properties that they otherwise wouldn’t have the chance to do. They are often pre-packaged, meaning all the work has been done for you, including the due diligence. However, they are longer-term investments and alternative investments, which makes some people nervous.

Alternative investments are a great way to diversity your portfolio and increase your rate of return. DSTs are about as simple as it gets when choosing alternative investments. With years of experience and knowledge in the financial industry, our experienced team of investment advisors can help you diversify your portfolio, including using commercial real estate investing instruments, such as DSTs. Contact us today to get started!