Alternative Investments

Many investors are less than enthused about the current valuations of traditional investments like stocks and bonds. After a decade-long bull market where the S&P 500 averaged more than 16% per year as of April, stocks are trading at historically high valuations. Bonds are offering very low yields compared to prior decades and the Federal Reserve just lowered rates even further. For better or worse stocks (including ETFs and mutual funds) are the assets that comprise the lion’s share of retail investors’ portfolios.

Unlike the typical investor, the wealthiest investors, institutions and endowment funds generally invest entirely differently by being more aggressive. They have a significant exposure to alternative investments like private equity (ownership interest in smaller companies that are not publicly traded), private debt (loans to smaller non-public companies), private real estate, hedge funds, currencies and commodities.

According to their website, Yale University, which manages almost $30 billion in its endowment fund, allocates only about 10% of assets in traditional domestic marketable securities. This is one of the reasons Yale’s endowment fund has averaged 13% per year for the last 30 years.

Many of these alternative investments outperform traditional stocks and bonds. Private equity has much higher historical returns than publicly traded stocks and private debt typically offers significantly higher yields than publicly traded corporate bonds. However, alternative investments typically do have longer holding periods and require higher minimum investments. They are also typically not as liquid as traditional investments. However, with less liquidity often comes less volatility; therefore, lack of liquidity is typically not a detriment to long-term investors.

Although these alternative investments have historically only been accessible by the large institutions and ultra-wealthy, over the last several years they have become increasingly more accessible to the typical accredited investor. There are many attractive alternative investments now available to the average investor and, accordingly, we have been allocating a significant portion of our clients’ portfolios to these alternative investments.


Keith Singer

Keith Singer, a well-known financial advisor in Florida, is both a CERTIFIED FINANCIAL PLANNER™ (CFP®) practitioner and a licensed Florida attorney.

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