VELA Blog

By Kevin Parton, Partner, Senior Advisor

 

In the ever-evolving landscape of investing, a significant trend has emerged that captures the attention of both individual and institutional investors alike: the shift towards alternative investments. This movement is not just a fad but a strategic pivot to diversify investment portfolios beyond the traditional confines of stocks, bonds, and cash.

 

Understanding Alternative Investments: What Are Alternative Investments?

Alternative investments encompass a wide array of assets that fall outside the traditional categories of stocks, bonds, and cash. These include:

• Commodities: Tangible products such as gold, oil, and agricultural goods.
• Real Estate: Properties that can generate rental income or capital appreciation.
• Private Equity: Investments in companies that are not listed on a public exchange.
• Derivatives and Hedge Funds: Complex financial contracts and investment strategies that allow for hedging risks or achieving higher returns by betting on the movement of asset prices.

These types of investments provide an opportunity for substantial diversification. They typically behave differently from standard stocks and bonds, often remaining unaffected by fluctuations in the stock market.

 

Strategic Incorporation of Alternative Investments

Balancing Risk and Reward

The decision to include alternative investments in a portfolio is calculated and tailored to fit individual risk tolerances and financial goals. While these investments can offer higher returns, they also come with their own set of risks such as lower liquidity and higher volatility. Financial advisors typically recommend allocating between 8% to 12% of an investor’s portfolio to alternative investments, depending on their risk appetite and investment timeline.

Democratization of Investing

One of the most noteworthy trends is the democratization of these sophisticated investment strategies. VELA Wealth’s partners are pioneering efforts to make high-value assets like private equity, private debt, and real estate accessible to retail investors. Through the unitization of these assets, barriers that once restricted access to affluent individuals or institutional entities are being dismantled, paving the way for a more inclusive investment landscape.

Conclusion: Embracing the Shift

The integration of alternative investments into financial planning marks a significant shift in wealth management. It opens up new pathways for investors to diversify their portfolios and enhance potential returns. As the financial landscape continues to unfold, the importance of being informed and adaptable to emerging investment opportunities becomes more pronounced.

VELA Wealth is at the forefront of this shift, providing clients with broader access to a spectrum of investment options that align with their unique financial objectives.

As we continue to witness this evolution, embracing alternative investments could well be a key strategy for those looking to spread their risk and potentially increase their returns in these turbulent times.

This exploration into alternative investments highlights the importance of strategic diversification and the role of key financial entities in facilitating access to complex asset classes. For investors looking to navigate this sophisticated terrain, partnering with adept financial managers who can guide them through the intricacies of regulatory compliance, risk management, and portfolio optimization will be crucial to achieving long-term financial success.

 

If you’d like to explore more about alternative investments, tune in to one of my recent interviews with Keith Allan, Portfolio Manager at Harness Investment Management, where we discuss the behind-the-scenes look at how VELA Wealth and its partners collaborate to unlock unique investment opportunities.

 

Disclaimer: The information provided in the article is designed for general informational purposes only and is not intended to provide specific advice or recommendations for any individual or on any specific security or investment product.