Alternative Asset Strategies for Diversification

We’ve spoken about what alternative assets are and why we’re seeing such an increase in this market space. We’ve also discussed the importance of diversification for a successful investment portfolio. In this article, we’re going to cover how alternative assets can be strategically used to diversify your portfolio to provide security while still offering growth potential. 

These are 3 of the top alternative investment strategies we recommend:

1. Debt funds

A debt fund is an investment that is backed and secured by debt. The investor’s capital is pooled and provided as a loan. These loans are secured against a company or borrower’s assets. The interest that the borrower pays becomes the capital gain for the investors. The investor is protected if a borrower defaults on repayment of the loan because the borrower has put up assets as collateral. These can then be used to recoup losses in the event they default on repayment. This offers investors a chance to diversify their portfolios into various markets (because everyone borrows money) while protecting themselves.  

 

2. Private Equity

Private equity is a form of alternative investment that involves investing in a private company, providing the investor with a portion of ownership. This isn’t to be confused with public equity, such as the open stock market. Private equity doesn’t have the same liquidity and flexibility as its public counterpart. However, private equity can offer higher rewards due to the higher risk and fewer regulations of the open market. 

 

3. Real Estate

Real estate is still one of the most diverse and beneficial alternative asset classes. You could invest in real estate through income properties, your personal residence, renovating and flipping properties, and, of course, mortgage funds. Investors can pool their money and provide a loan to a borrower, much like a debt fund, with the property acting as asset collateral. To make this kind of investing even safer, a mortgage investment corporation (MIC) will manage the fund. When a MIC manages a fund, the investment is further diversified through various projects and properties. An average investor wouldn’t be able to fund all of these projects, so the fund, or pool, spreads out the risk.

There is one thing to consider when diversifying your overall investment portfolio: percentages. The entirety of your portfolio shouldn’t be in alternative strategies. You should have a percentage in cash, a portion in low-risk traditional means, such as bonds or GICs, and then look into alternative investments. The ratios will depend on each individual. 

Are you looking to get the most out of your alternative investments? In that case, Jordan on our team can help you learn more about mortgage investing and its potential. Get in touch today.