As traditional investments face adverse uncertainties and market volatility, high-net-worth individuals have found that alternative assets offer an appealing opportunity for diversification and compounding wealth. Seasoned investors understand the value of diversifying their portfolio in a market that is in constant flux.
So far, alternative investments have traditionally been the preserve of sophisticated institutional investors, allowing them to lock up their capital for extended periods. They forego access to liquid funds and reap better returns in the process.
However, as of 2023, high-net-worth investors had an average of 9.1% of their assets allocated to alternative investing options. Advisors forecast this to increase to 9.6% in 2024.
Alternative assets are not necessarily new additions to the investment pool. Despite being two of the oldest investments, real estate and commodities assets such as precious stones are considered alternative investments. Let us dissect what alternative investments are and why they are a top pick for high-net-worth investors.
Alternative investments complement traditional, publicly traded investments, expanding beyond the conventional boundaries of stocks, bonds, and cash. Unlike traditional investments, characterized by liquidity and simplicity, alternative investments delve into a more diverse and complex array of assets.
This category includes but is not limited to:
- Real estate
- Private Equity
- Commodities
- Tangible assets like art and antiques
These non-traditional approaches to investing are distinguished not just by their unique asset classes but also by their utilization of sophisticated strategies that may involve leverage, short selling, and derivatives.
The distinction between “traditional” and “alternative” investment strategies is not merely slight but significant. While traditional investments are generally more accessible, liquid, and regulated, alternative investments are marked by their illiquidity, higher entry barriers, often more excellent fee structures, and a less stringent regulatory environment.
These fundamental differences underscore the importance of alternative investments in offering diversification, potentially reducing overall portfolio risk, and enhancing returns under certain market conditions. However, it also highlights the increased complexities, risks, and due diligence required when considering alternative investments as part of a broader investment strategy.
Exploring High-Net-Worth Individuals’ Appeal to Alternative Investments
Unlike traditional investments commonly traded on the stock market, alternative assets can offer unique benefits, particularly in market volatility. Diversifying your portfolio by including alternative investments may mitigate risk, as these assets often correlate negatively with the stock market’s performance.
However, it’s important to note that not all alternative assets will outperform during market downturns, and their performance can vary significantly depending on the asset class and market conditions.
Moreover, while it’s true that alternative investments can be more complex and carry higher risk profiles, they also have the potential for significantly high returns. However, suggesting that they consistently generate returns within the 50-100% range may not accurately represent the broad spectrum of potential outcomes. Investors should approach these opportunities with a clear understanding of the variability of risks and potential returns.
One of the most attractive features of alternative investments is the potential for portfolio diversification. Investors can choose from a wide array of assets, including real estate, private equity, commodities, and collectibles. This variety allows for the customization of investment strategies to better align with individual goals and risk tolerances.
As we delve deeper into the investing strategies of high-net-worth individuals, it’s clear that access to a broader range of investment opportunities can offer distinct advantages.
High-net-worth individuals, in particular, are increasingly turning to alternative assets for several key reasons:
- Cash Flow: Many alternative investments, like real estate, online businesses, and dividend-paying private equities, provide regular income streams.
- Diversification: These investments present unique opportunities that are not found in traditional stock and bond markets.
- Non-Correlation with Traditional Assets: Alternative investments often move independently of the stock and bond markets, which can reduce overall portfolio volatility.
- High Returns: Although accompanied by higher risks, these assets have the potential for substantial returns, appealing to those with greater risk tolerance.
However, each investor must evaluate how these strategies fit their overall investment framework. What works for high-net-worth individuals may not be suitable for everyone, given differences in financial resources, investment goals, and risk appetite.
An Analysis of the Top Investing Strategies for the High-Net-Worth Investor
Some high-net-worth investors have mastered the art of portfolio diversification by acquiring a mix of traditional and alternative assets. While their initial wealth may stem from entrepreneurship or successful careers, their growth is primarily due to strategic thinking and taking calculated risks in their investment choices.
To achieve financial prosperity, the following investing strategies for the high-net-worth investor are highly recommended:
1. Investing in Online Businesses
Online businesses represent a highly viable opportunity within the expanding small business economy and increasing buyer demand. Prime examples of online assets include Software as a Service (SaaS) platforms, mobile applications, and e-commerce stores. These assets are not only simple and lucrative investment options but also offer significant freedom and flexibility for investors. Here are some reasons online businesses are becoming increasingly popular:
- Generate passive income: Online businesses, such as affiliate sites, dropshipping sites, and advertisement sites, provide hands-off investment opportunities.
- Capital appreciation prospects are promising: Despite the online business market’s youth, it is experiencing rapid growth. The ROI can provide up to 5 times more than other investment assets.
- Liquidity and easy exit strategies are notable advantages: Websites often experience high turnover rates, and a steady market exists for various types of online properties.
Investing in online businesses is familiar territory for WebStreet. To navigate the world of online assets, consulting with the professionals at WebStreet is your best next step.
2. Adopting Diversification
As aforementioned, high-net-worth individuals invest in various asset classes. This approach helps to reduce the effect of any single investment’s poor performance on the portfolio. Diversification can be implemented through the following:
- Asset allocation: Investing in various asset classes is encouraged based on an investor’s risk tolerance, investment goals, and time period. A more extended time period corresponds with a higher allocation of alternative assets.
- As for a shorter time period, with retirement on the horizon, investment should be spread across fixed-income investments and alternative assets. A statistical survey showed that 4 out of 10 high-net-worth investors allocate more than 20% of their portfolio to alternative assets.
- Sector diversification: Preferably invest in different sectors of the economy, such as healthcare, technology, and finance.
- Geographic diversification: To reduce the impact of any country’s performance, consider investing in countries and regions with high economic growth.
- Investment type diversification: Shifting to alternative investments is stressed for unlocking higher returns.
With traditional investing subject to public market volatility and lackluster returns, diversifying by embracing alternative assets may be the change your portfolio needs.
3. Acquiring Private Equity
Private equity firms manage private equity funds. These firms use capital from investors to acquire, invest in, and grow privately held companies, similar to WebStreet‘s business model in managing alternative assets. Private equities come in these forms:
- Leveraged buyouts: An instance where a private equity firm acquires a company using a significant amount of debt. The cash flows from the acquired company are used to pay off the debt while generating returns for the investors.
- Growth equity: Investments go into a company with a strong market position and solid business model. The private equity firm provides capital for the growth and expansion of the company.
- Venture capital: Investments are pushed into early-stage companies, such as start-ups with high growth potential.
Private equity serves the advantages of higher returns and unique investment opportunities.
4. Investing in Real Estate
As we have uncovered, real estate doubles as a traditional and an alternative asset. There are long-term returns to be reaped and potential tax benefits to be enjoyed. Examples of real estate investments:
- Direct real estate investment: Investors purchase physical properties directly to earn rental income or capital appreciation.
- Real estate investment trusts: Rather than purchasing directly, investors can purchase real estate through Real Estate Investment Trusts (REIT)—companies that own and manage income-producing properties.
- Real estate crowdfunding: Platforms that allow investors to pool their capital together to purchase properties that wouldn’t be otherwise available to them as individuals.
- Private real estate funds: Similar to private equity funds, they are managed by professional investment firms and offer assistance in investing in a portfolio of real estate assets. They often have a minimum investment size and are available to accredited investors.
Real estate investments’ tax benefits include depreciation deductions, mortgage interest deductions, and tax-deferred exchanges. As alternative assets, real estate properties can generate passive income through rental income, and because property values tend to increase with inflation, real estate investments are positively subject to an inflation curve.
Ready to Elevate Your Investment Portfolio? Dive into the world of online business investment with WebStreet. With our platform, you gain access to a diversified portfolio of alternative investment assets managed by experts to ensure you enjoy passive income, lower risks, and potentially high returns.
How Webstreet Compares To Other Alternative Investment Platforms
Tapping into alternative investing can be challenging, but working with financial advisors on alternative investment platforms helps clear muddy waters. Alternative investment platforms are a great place to start, especially since some securities, such as rare collectibles, are not listed on any stock exchanges.
Several factors can influence your choice of alternative investment platform. Key considerations include account minimums, fees, portfolio and asset types, customer support, and user experiences.
WebStreet is a leading example of an alternative investment platform that prioritizes its clients’ needs, depending on investors’ goals, and prioritizes passive income for investors.
What Sets WebStreet Apart
WebStreet expertly matches the needs of hands-on, active handling of alternative assets and investors without time for day-to-day management. One of our selling points is our carefully vetted and qualified portfolio managers.
Portfolio managers are responsible for managing different funds and acquiring online businesses under the advisement of WebStreet management. The investment structure is as follows:
- 95% of the capital—that goes into each fund for the acquisition of online businesses—is put up by investors. One of the perks of the initial investment is that investors are not asked to put in more than the stated amount.
- The portfolio managers put in the remaining 5%.
- Investors receive two-thirds of the profits. They give up one-third (33.3%) of the profits to turn online business investing into a passive alternative investment.
- The 33.3% is split this way:
- 20%: Remuneration for portfolio managers
- 10%: Funneled back into WebStreet
- 3.3%: Paid to outside advisors (if any. Otherwise, it’s retained by WebStreet)
- Once a business is sold, investors are paid back first, and then any sales profits are split at the percentages noted above.
WebStreet also offers high-growth digital assets in content/affiliate marketing, Amazon FBA, SaaS, and Kindle Direct Publishing (KDP) niches. This assures investors that the number of online businesses available will grow directly proportional to the increase in portfolio managers joining the team.
Unlike most alternative investment platforms, WebStreet is ideal for entrepreneurs, busy founders, and high-performing employers. All these individuals have three things in common:
- Diversification interests in alternative investing
- Lack of time to pour into the active management of alternative assets
- An ear for investing strategies for the high net worth investor
WebStreet prioritizes its investors’ best interests by advocating for diversification across different funds to mitigate risk. In addition, the discovery of alternative strategies for investment via online businesses has inspired WebStreet’s professionals to educate investors about these new opportunities in alternative assets actively.
Alternative Assets: Are They Worth It?
As the investment landscape evolves, high-net-worth individuals are increasingly considering alternative assets. While these assets can offer unique benefits, it’s essential to approach them with a balanced perspective:
- Diversification and Market Correlation: Alternative assets can provide diversification away from traditional stock and bond markets, potentially reducing portfolio volatility. However, the extent of this benefit varies among different types of alternative investments. Investors should evaluate the correlation of each asset class with traditional markets to fully understand the diversification benefits.
- Tax Considerations: Some alternative investments may offer tax advantages, like favorable long-term capital gains treatment or opportunities to defer taxes. However, these benefits are only universal across some alternative assets and can be subject to changes in tax legislation. It’s advisable to consult with a tax professional to understand how these investments fit into your overall tax strategy.
- Understanding Returns: While alternative investments have the potential for higher returns than traditional ones, this comes with higher risk and, sometimes, higher fees. The performance of these investments can vary significantly, and high returns are not guaranteed. Investors should carefully consider their risk tolerance and conduct due diligence before investing.
- Management and Passive Investment: The allure of having investments passively managed by professional portfolio managers is vital. However, investors should critically assess the track record of any management team and consider management fees, as these can impact overall returns. There’s no guarantee of success; remaining informed about your investments is crucial.
- Fractional Ownership and Diversification: Investing in fractional ownership of online businesses offers a way to access various business models and potentially reduce risk through diversification. Nonetheless, it’s essential to be aware of the specific risks associated with online businesses, such as competitive pressures and regulatory challenges. Diversification can mitigate, but not eliminate, risk.
- Forward Planning: Considering alternative investments as part of your financial strategy can be wise, especially for those looking to diversify their portfolio. However, such investments should align with your financial goals, risk tolerance, and investment timeline. Independent research or consultation with a financial advisor is recommended to ensure these investments suit your portfolio.
In collaboration with WebStreet, investors can explore a diversified portfolio, including fractional ownership in various online businesses. This approach aims to reduce risk while offering the potential for attractive returns. Similarly, investors can expect increased cash flow and relatively higher returns. Still, as with all investments, a comprehensive understanding of the associated risks and rewards is essential.
By considering alternative investments as part of a broader investment strategy, investors can work towards securing their financial future in a balanced and informed manner.
Click Here To Start Your Journey With WebStreet Today. Unlock the door to diversified, alternative investments and learn more about investing in online businesses by reading our blog.
