After the financial crisis, and throughout the COVID-19 pandemic, Americans examined how and why they invest. Many investors that had their entire wealth tied to the stock market proved to be more destructive than having alternative investments not correlated to stock market performance. Others had difficulty liquidating investments to meet their financial obligations.
Both of these events were unfortunate for investors with no option besides liquidating their assets during a low-valuation period or investing only in intangible investments in the public markets. However, High Net-Worth (HNW) investors are faring better than other investors.
After the 2007 Financial Crisis, HNW investors started seeking opportunities in alternative investments to protect their wealth from loss. The desire for wealth protection is revitalizing today due to the volatility in equities and commodities investments.
There isn't a secret that only HNW investors know to guarantee a high return, but they generally adhere to common avoidances. When they invest, they look for alternative investments that help preserve their wealth for the next generations that follow. What investments do they make in addition to investing in the public markets? Tangible assets for example:
Valuable precious metals, in addition to Gold. Precious metals such as Titanium and Platinum are used in the electronics industry for multiple items, making them desirable to manufacturers and government entities. The investment may be in the mining opportunity, distribution of the asset, or some other aspect of the metal's purchasing or development and liquidation.
Precious metal investing is subject to substantial fluctuation and potential for loss.
Real Estate. When it comes to real estate, HNW investors think bigger, globally, and look for real estate that doesn’t come on the market often. Private residences/estates, commercial property, and property (both developed and undeveloped) outside of their geographic area allow for steady appreciation over time. They look at real estate for long-term investing with monthly income and liquidation opportunities, potentially years later.
Investments in real estate may be subject to a higher degree of market risk because of concentration in a specific industry, sector or geographical sector. Other risks can include, but are not limited to, declines in the value of real estate, potential illiquidity, risks related to general and economic conditions, stage of development, and defaults by borrower.
Art, Coins, and Collectibles. Investors in this asset area know the value of what they own and understand that ‘limited supply’ can make them money. Owning art and collectibles the public is aware of can potentially create a more significant return.
Alternative investments may be exclusive to the threshold amount of the investment and may not be appropriate for all investors. Furthermore, alternative investments have risks just like any other investment. Lastly, all investors, including HNW investors and those seeking alternative investments, may want to avoid the following:
- Investing 100% of their investible assets into alternative investments.
- Not seeking investment advice from a qualified financial professional.
- Overspending and not adhering to their financial plan.
- Failing to rebalance their portfolio.
- Investing only in the U.S. Markets and allocating all of their wealth to the public markets.
Meet with your financial professional if you have questions about alternative investments and to determine if they are appropriate for your situation.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial professional prior to investing. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and cannot be invested into directly.
The information provided is not intended to be a substitute for specific individualized tax planning or legal advice. We suggest that you consult with a qualified tax or legal advisor.
Alternative investments may not be suitable for all investors and should be considered as an investment for the risk capital portion of the investor’s portfolio. The strategies employed in the management of alternative investments may accelerate the velocity of potential losses.
All information is believed to be from reliable sources; however LPL Financial makes no representation as to its completeness or accuracy.
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