For Many, The Answer Lies Within the World of Alternative Investments
Active and informed investors are always looking for an opportunity to strengthen their portfolios and unlock new investment offerings that can help them better accomplish their goals. The range of conventional options are well-trodden: stocks, bonds, and investment funds are already part of almost every investor’s portfolio. Finding ways to further diversify and expand your asset portfolio can be tough as a result.
Investors who are looking for new and unique opportunities now seek them out through alternative assets. With alternative investing, investors can pick from a wide array of investments—each with its own distinct value proposition.
Even though the alternative assets category is vast, there are a few ground rules and commonalities between most alternatives that should be on investors’ radar. Here are five things to know about alternative assets and how they might be just what your well-rounded portfolio needs.
1. They Provide More Investment Options
Alternative investments are considered to be any opportunity to own a stake in something outside of the stock market, broadly speaking. For the most part, this consists of real assets: real estate, precious metals, commodities, or farmland, to name a few. Investors can own these items directly or indirectly.
Take gold, for example: although it’s possible for investors to buy physical gold bars as an investment, many prefer to buy shares of gold that are tied to gold bars held somewhere else. The same is true for other commodities, real estate, or farmland: your investment is tied to physical property even if you decide to buy shares. Other investments, such as derivatives or hedge fund investments, are traded outside the stock market, thus making them alternative investments as well.
Both of these kinds of alternatives consist of a wide array of investment options. By comparison, conventional investing has a much narrower range of investment types—stocks, bonds, or cash. There are certainly a slew of different investment choices within the conventional market, but there’s still much in common between them all. Alternatives, by contrast, give investors different ways to invest their money across unique physical and financial products.
This makes it easier to move money outside the markets, which in turn diversifies how you grow your assets.
2. They’re Not Just for a Small Category of Investors
Alternative assets have long been associated with institutional investors or the ultra-wealthy. This isn’t the case. Commodities are one example of an alternative asset class that anyone can participate in. Your average investor can buy commodities or real estate without having to be an accredited investor.
Some other alternatives do require you to be an accredited investor. Individuals who have made more than $200,000 in the past two years, or who have made $300,000 with a spouse, can become an accredited investor so long as they expect to bring in the same income in the present year. This means you might be able add a broader variety of alternative investments to your portfolio than previously thought.
Plus, alternative investments in farmland through FarmTogether begin with as little as $10,000. This isn’t the case for other common options, such as hedge fund or private equity fund investing. For those, you often have to put up at least six figures to get started.
3. They Can Hedge Against Inflation and Volatility
Some alternative investments enjoy protection from broader stock market trends, making them an excellent hedge against the side-effects of monetary inflation and market volatility. Real assets tend to fare well when the purchasing power of the dollar declines. This is true for real estate and commodities, since a less valuable dollar increases the going price for property and consumer goods.
These investments enjoy what is known as low correlation with the stock market. Correlation refers to the ways in which assets move in tandem with market trends. Commodities in particular have a low correlation with stocks: the price of food, precious metals, and oil usually increase during periods of inflation while stock values drop. Other investments, like real estate, fare well too: when the dollar drops, their valuation increases.
The more you can incorporate low-correlation assets into your portfolio, the more distance you can create between your portfolio and the markets. This comes in handy when you’re looking for good alternatives for hedging volatility.
4. Some are Steadier than Treasury Bonds
Alternative investments are sometimes all mis-categorized as risky investments. Although some are—options trading being one of the riskier alternatives—others are remarkably conservative.
With interest rates as low as they are on Treasury bonds, investors will have a difficult time finding one that offers much of a yield. Current rates are a fraction of a percent, and inflation would likely erase the marginal yield they provide. Even inflation-adjusted bonds fare worse than some alternative investments on average. Treasury Inflation-protected securities offer a floating interest rate that’s tied to inflation, but investors lose out on any gains on their money if the dollar deflates when their bond matures.
Now more than ever, some alternatives do a better job of providing stable, steady returns.
Gold is perhaps the best-known alternative that investors seek out when they want to safeguard assets from market volatility. Gold has increased in value on average throughout the last two decades. Real estate is also seen as a fairly stable investment so long as the investor seeks to hold their property for the long-term.
Then there’s farmland: farmland value has risen almost yearly on average since 1988, and it shows no sign of slowing down in the near future. The demand for agricultural products and commodities that come from farms make them an essential staple of the global economy. Global population growth will require farms to significantly ramp up production as well, which also impacts farmland investing’s potential.
5. They Can Open Up New Sectors for Your Portfolio
There are a range of investment types that are only available as alternatives. Fractional ownership of real property is one of them. Investors with significant capital can buy certain pieces of real property directly. For many, this is an expensive and risky proposition. Alternative investing by way of fractional ownership is a much more balanced option for investors that want exposure to real estate, but without having to buy and manage property themselves.
Farmland investing excels in this example. Investing in farmland with FarmTogether opens up the agricultural sector to you in a way that other conventional assets and commodities cannot. When you invest with FarmTogether, you’ll get a direct ownership stake in a farm of your choosing from our offerings. This makes it much more affordable to incorporate a valuable real estate asset into your holdings.
Diversification is the backbone of a strong portfolio, and there are few better ways to diversify your assets than through alternative investments—especially when you can tailor them to your own strategy and budget.
Get Started in Alternatives with FarmTogether
Alternative assets offer investors a host of different advantages that conventional investments can’t necessarily match. This makes it crucial for investors of every kind to consider where at least one alternative investment might fit within their portfolio.
Accredited investors can take advantage of farmland investing as an excellent hedge against inflation and volatility while getting greater returns on their investments than every current Treasury bond—all with the same target hold date. FarmTogether makes it easy, too: all you need to do to get started is open an account. From there, we’ll connect you with our team of seasoned farmland investment experts who will walk you through your goals and opportunities.
To find out more about farmland investing with FarmTogether, you can check out our FAQ. When you’re ready to start, you can create a FarmTogether account and be paired with one of our investing experts right away.
Disclaimer: FarmTogether is not a registered broker-dealer, investment adviser or investment manager. FarmTogether does not provide tax, legal or investment advice. This material has been prepared for informational and educational purposes only. You should consult your own tax, legal and investment advisors before engaging in any transaction.