The following blog article was written by Scott Fricker, Financial Advisor here at Fortitude Investment Group.  In it, Scott gives some insight on alternative investments and how they can add diversification to an accredited investor’s portfolio. If you have any questions about this article, please feel free to reach out to Scott or Dan Raupp, Founding Partner at Fortitude Investment Group for more information.

Scott writes:

As we find ourselves in the midst of an ever-changing and dynamic marketplace, the importance of a diversified portfolio has never been more apparent.  There is no question that the conventional 60/40 portfolio split (60% of assets allocated to stocks and 40% invested in bonds) is an outdated and, in my opinion, an inefficient method of investing.  Similar to most industries across the nation, the financial services industry has experienced a recent shift due to emerging technologies, increased transparency, and the automation process.  Many firms have implemented some form of algorithmic trading which has led to large, unpredictable swings in the marketplace. This idea paired with political and socio-economic instability proves to be a genuine concern that has many savvy investors wondering how to minimize exposure to such factors.

The cyclical and unpredictable nature of U.S. equities market brings us to an entirely different world of investments; “alternative investments”, that exists beyond traditional publicly traded stocks, bonds, and mutual funds.  Alternative investments or “alternatives” include hedge funds, managed futures, private equity, real estate, etc. and can be a valuable addition to a portfolio when suitable.  Some of these structures allow an individual to invest alongside with some of the largest institutional investors in the world, including pension funds, credit unions, large endowments, and multi-billion-dollar institutions.   Alternatives are unique in the sense that the potential returns generated from these investments is often not directly correlated with market performance.  Some alternative strategies can be market-neutral, while others perform conversely to the bond or equities market.  The potential income generated by alternatives, specifically commercial real estate-based investments, can be tax-advantaged in certain scenarios.

However, alternatives are not appropriate for every investor.  These investments are typically only available to accredited investors.  An accredited investor is an individual with a net worth of at least $1,000,000, excluding the value of one's primary residence, or have an income at least $200,000 individually/$300,000 jointly for the last two years with expectations for earning the same or higher in the current year.  Additionally, some investments are classified as long-term, and illiquid in nature.

If you are interested in alternative investments, we encourage you to speak with your trusted advisor about how to:

  1.  Evaluate your investment portfolio and assess the amount of diversification
  2.  Become educated on alternative investments and the pros/cons of these strategies
  3.  Consult your investment advisor about how alternatives may be a good fit for your portfolio
I believe alternatives can add tremendous diversification to an investor’s portfolio and potentially outperform the market during good and bad economic times.  Many investors find peace of mind knowing that their investment dollars in real estate-based alternatives are linked to tangible assets with intrinsic value (that typically appreciates over time).  Whether it may be an assisted-living/senior housing deal, a portfolio of industrial properties, or a fund with a geographically diverse collection of multi-family assets, the alternatives linked to commercial real estate can span across every asset class.

If you are interested in learning more, contact our team today!

 

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DST 1031 properties are only available to accredited investors (generally described as having a net worth of over $1 million dollars exclusive of primary residence or $200,000 income individually/$300,000 jointly of the last three years) and accredited entities only. If you are unsure if you are an accredited investor and/or an accredited entity please verify with your CPA and Attorney. There are risks associated with investing in real estate and Delaware Statutory Trust (DST) properties including, but not limited to, loss of entire investment principal, declining market values, tenant vacancies and illiquidity. Diversification does not guarantee profits or guarantee protection against losses. Potential cash flows/returns/appreciation are not guaranteed and could be lower than anticipated. The information herein has been prepared for educational purposes only and does not constitute an offer to purchase or sell securitized real estate investments. Because investors situations and objectives vary this information is not intended to indicate suitability for any particular investor. This material is not to be interpreted as tax or legal advice. Please speak with your own tax and legal advisors for advice/guidance regarding your particular situation. Securities offered through Concorde Investment Services, LLC (CIS), member FINRA/SIPC. Advisory services offered through Concorde Asset Management, LLC (CAM), an SEC registered investment adviser. Insurance products offered through Concorde Insurance Agency, Inc. (CIA). Fortitude Investment Group is independent of CIS, CAM and CIA.

 

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