Exploring Alternative Investments: A Different Way to Build Wealth

Today, we're diving into alternative investments. These are not your typical stocks, bonds, or cash investments—they're a different way to grow wealth. Alternatives can help you reduce the ups and downs in your portfolio, generate more income, and give you access to unique opportunities you may not have considered.

Watch Now: Exploring Alternative Investments: A Different Way to Build Wealth

Timeline

0:00 – Intro
0:40 – Examples of alternative investments (Private Credit, Private Equity, Hedge Funds, etc)
1:47 – Important considerations
2:31 – Rethinking the traditional 60/40 strategy
4:39 – Key factors: liquidity, taxes, position sizing
5:43 – Final Thoughts
7:21 – Outro

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What Are Alternative Investments?

"Alternatives" is a broad category. Some common examples include:

Private credit and private equity
Real estate and infrastructure
Hedge funds
Market-neutral and long-short strategies
Even precious metals like gold and silver

These types of investments are designed to complement your portfolio. They can reduce risk, provide better income, or even offer returns that are less connected to the stock market's ups and downs.

Are Alternatives Right for You?

Here are some key points to keep in mind:

Long-Term Commitment: Many alternative investments are not as liquid as stocks or bonds. You might have to hold them for years, and selling them early could be tricky.
Risk: Like any investment, alternatives come with risks. They aren't guaranteed to perform better than traditional investments.
Tax Implications: Some alternatives generate ordinary income, which could increase your tax bill. It's important to consider where you hold these investments.

Why Consider Alternatives?

Traditionally, portfolios were built with 60% stocks and 40% bonds. But with recent market challenges—like low interest rates and increased volatility—many experts are rethinking this mix. By adding alternatives, you might create a portfolio that looks more like 60% stocks, 20% bonds, and 20% alternatives.

This new approach can:

Diversify your investments
Reduce volatility (the big swings in your account value)
Increase income potential

For example, during recent market drops, both stocks and bonds moved in the same direction, making it hard to protect your portfolio. Alternatives, which are less connected to traditional markets, could help stabilize returns.

Is There a Catch?

Yes, there are a few things to consider:

Access: Some alternative investments are only available to higher-net-worth individuals due to SEC regulations.
Position Sizing: It's important to allocate only a portion of your portfolio to alternatives. You need to balance liquidity (easy access to your money) with potential gains.

Final Thoughts

Alternative investments aren't a "one-size-fits-all" solution. They should align with your personal goals and timelines, which is why a solid financial plan is crucial.

If you're curious about whether alternatives are right for you, talk to a trusted financial advisor. At Commonwealth Financial, our team is here to help you explore your options and make informed decisions.