Alternative investments are all asset classes outside the traditional stocks, bonds, and currencies. That leaves an incredibly broad range of asset types to consider, including venture capital, private equity, real estate, and cryptocurrency, each of which has various sub-categories.
The key to successful alternative investing is to find high-quality assets that fit your investment goals and objectives. Once you’ve done that, you need to develop a strategy for how you’ll allocate your capital across different asset types.
And finally, it’s important to remember that alternative investments should only make up a small portion of your overall portfolio. They should be viewed as a way to diversify your holdings and reduce overall risk.
The Benefits of Diversifying With Alts
Diversification is a key tenet of investing, and alternative investments offer a powerful way to achieve it. Investing in a wide range of asset types can minimize your exposure to any particular risk.
For example, let’s say you have a heavily invested portfolio in the stock market. If the stock market were to experience a sharp decline, your portfolio would also likely take a hit.
But if you diversify with alternative investments, you can offset some potential losses you might incur in the stock market. For instance, if you invest in real estate, you’ll likely benefit from stability and growth in the value of your properties even if the stock market declines. For example, if you’re worried about a potential decline in the stock market, you could invest in cryptocurrency, which has a relatively uncorrelated relationship with traditional assets. Alternatively, investments can also hedge against downside risk in your portfolio.
The bottom line is that alternative investments offer a unique way to achieve a wide range of investment goals.
Why a Strategy is Essential
Of course, simply investing in alternative assets isn’t enough. You must also develop a strategy for allocating your capital across different asset types.
The most important thing to remember is that you shouldn’t put all your eggs in one basket. Just because you’re investing in alternative assets doesn’t mean you’re diversified.
For example, let’s say you invest all your money in real estate. While real estate can be a great investment, it’s still subject to market fluctuations. So, your entire portfolio will be impacted if the real estate market declines.
To properly diversify your portfolio, you must allocate your capital across various asset types. If one asset class experiences a downturn, your other holdings will offset some losses.
A well-diversified portfolio should include a mix of traditional and alternative investments, including private markets. For the average individual investor, accessing top-tier, actively-managed funds can be difficult due to high minimum investment requirements.
However, with a Gridline Thematic Portfolio product, you can invest 5-10 institutional-grade funds for just $100,000. This allows you to build a more diversified, resilient portfolio focused on long-term wealth creation. Additionally, by actively engaging with your assets, you can generate operational alpha and improve risk management.
The takeaway is that you need to have a strategy for allocating your capital across different asset types. Without a plan, you’re simply guessing, a recipe for disaster. With the right strategy and a high-quality selection of alternative investments, you can build a diversified portfolio that will help you achieve your financial goals.