Wondering when the right time to invest in alternative investments might be? Thanks to the past few years, we could be in the perfect place now. The beginning of the COVID-19 pandemic saw a lot of market uncertainty and volatility. Despite all this, 2021 was one of the best-performing years on record. Now, in 2022, investors are wondering how to structure their portfolios to withstand the changes projected to be brought about by interest rate increases. As banks move to combat excessive inflation over the past year and a half, rates are steadily increasing, which will impact many investment vehicles.
The increased interest rates in Canadian and US markets aren’t the only factor contributing to market changes. The supply chain shortages we experienced throughout 2021, coupled with The Great Resignation, will impact many publicly traded companies and funds. It’ll become increasingly expensive for companies to borrow money and grow when they have difficulty hiring and retaining talent. Investors must keep a close eye on their investments in publicly traded markets right now.
Another reason to invest in alternative assets and investments is the reduced volatility. As interest rates increase and we expect volatility, alternative investments have already proven to be a safer route. When we look at a historical average, alternative investments provide returns with less volatility than other investment vehicles, such as stocks.
Although increased interest rates can have a negative short-term impact on publicly traded companies, they’re still a sign of a healthy economy overall. Nonetheless, to avoid volatility and loss, now is the perfect time to look into alternative investments that could remain more sheltered from the impacts of increased interest rates.
We mentioned in a previous post how you want to be on the beneficial side of this upsurge when interest rates increase. Consider this: If interest rates rise, does it make more sense to take out the mortgage on a real estate investment at this higher rate or to lend out the loan and collect the higher interest as your profit? Look for ways to be on the receiving end of an interest rate increase.
Many factors have made alternative investments a desirable investment vehicle moving forward. However, not all alternative investments are equal. Some investors swear by gold as it’s relatively stable, but the 5-year average return is only about 8.5% compared to contemporary art, which has increased by 14% in some cases.
Many lead strategists from JPMorgan Chase & Co recommend investors look at real estate and hedge funds. However, hedge funds aren’t always an option for investors. When considering a real estate investment in a time of increased rates, ensure you’re on the right side of the interest. Investing in a REIT or a mortgage pool through a MIC means you benefit from the increased interest rather than it costing you.
Are you interested in learning more about allocating a portion of your portfolio into real estate through a mortgage pool? The team at Cooper Pacific is here to help. With over two decades of experience, we’re here to answer your questions and help you benefit from the alternative investment sector. Get in touch with Jordan on our team today to learn more.