Is It Time To Add Alternatives to your Investment Portfolio?
            Many Americans are not satisfied with the meager return they are receiving from their typical stocks, bonds, and mutual fund investments.  So, what are alternatives and are they safe investments?  Basically, alternatives are any investment vehicle other than stocks, bonds, and mutual funds.  There are literally 100's of alternative investments available for you to invest your hard-earned money into.  As far as their risk, each one comes with moderate to extreme risks, but you need to compare the risks with other investments to shed some light on the true risks involved--not to mention your individual tolerance for risks.  All in all, some of these alternative investments can be safer than the stock market.  If you want returns not tied to the stock market whims, alternative investments might be a good source.  Let's just touch on a few of the most common alternative investments. 
Purchase Real Estate
            There are no surprises here, real estate has always been a popular alternative investment.  However, there are several different ways to invest in real estate.  Of course, the most common method is to purchase outright residential or commercial properties. Or, if you want to share the risks and profits you may want to consider syndications such as private placements (Individual, Delaware Statutory Trusts, and Tenancy in Common), real estate investment trusts (Both public and private), or partnerships.  Adding some investment real estate to your portfolio can also give you some added tax benefits such as depreciation and interest deductions.  Just like stocks, real estate can be purchased for future appreciation or cash flow.
Real Estate Notes
            Have you ever considered being the bank?  Purchasing real estate notes allows you to become the bank instead of a landlord.  Many seasoned real estate investors eventually decide to buy and sell notes instead of renting properties.  You do need to qualify the buyers and if foreclosure is necessary, be knowledgeable enough to remodel and sell the property quickly to avoid loss of income. 
Real Estate Tax Liens
            Many counties auction tax liens on a monthly basis.  Purchasing tax liens can be a good investment because some states allow interest returns as high as 20%.  You will need to hold the tax lien until the owner satisfies the lien or foreclose on the property.  Most tax liens are set for one year.  These investments are best suited for experienced investors because of the time and knowledge needed to deal with the county agencies. 
Bridge Loans
            Bridge loans are similar to buying real estate notes except most bridge loans are short-term notes with a high return on investment.  Typically, bridge loans are designed specifically for corporate or business owners who need loans for short durations--say 6-12 months.  Again, you can invest in a pool to share the risks and profits. 
Life Settlements
            Life settlements move away from real estate into the insurance market.  Believe it or not, many people have insurance policies they no longer need and are willing to sell them to investors.  The original owner of the insurance contract assigns their beneficiary interest to an investor at a discount to the face value of the insurance death benefit.  The investor does not receive a return on their investment until the person dies. 
Oil and Gas Leases
            These leases depend on the production capacity of the particular sites.  Of all of the alternative investments mentioned thus far, these investments carry the most risks.  Naturally, the return on your investment can be considerable when production capacity is up, however; when the well runs dry you are left with asset value only.  It is best to invest small amounts into syndications and partnerships. 
            As you can see, many of these alternatives investments involve real estate in some form.  Real estate, as an investment vehicle, has many faces which make it an excellent investment choice for individuals seeking a higher return on their money.  I have been involved in all of these alternative investments in one form or another.  However, I do not recommend any first-time alternative investor to go at it alone.  I advise all newcomers to team up with a more experienced investor and make sure you also work with professional investment and management advisors. 
As always, let me know if I can help
Gerald House MSM


Comments

Post a Comment

Popular posts from this blog

ARE YOU SATISFIED WITH THE FINANCIAL ADVICE YOU ARE RECEIVING?

Are you Satisfied with the Financial Advice you are Receiving? “If you can’t explain it simply, you don’t understand it well enough ” Albert Einstein How long are we going to subscribe to the typical investment advice on just building assets for retirement?   Is there a better way?   While we are talking about it, is investing only in stocks or stock funds really diversification?   When we have another stock market correction, will it only affect large-cap stocks? Small-cap ? Emerging markets? International markets?   Finally, should financial planners keep forecasting future results in their overly complex financial plans riddled with too many assumptions?   If you follow my blog, you will notice a common theme in my writing—typical financial investment advice has failed.   The baby boomer generation in retirement now validates the poor investment advice provided to investors in previous years.   What happened to the 401K?   Where a...
Read more
The Yale Endowment Model         The Yale endowment model incorporates the mean-variance approach as described in Modern Portfolio Theory (MPT) designed by Harry Markowitz and James Tobin ( Yale Investment Office, 2017).  Markowitz (1952) based his theory on the idea of minimizing investment risks within the investment portfolio by enhancing diversification strategies designed to optimize an investment portfolio given any level of risk. The Yale Endowment Model, using this method, has changed its mix of investments from nine-tenths in stocks, bonds, and cash to just one-tenth in recent years.  Currently, the Yale Endowment model uses an alternative investment mix for the bulk of their investments to include private equity, real estate, leveraged buyouts, venture capital, absolute returns, foreign equity, domestic equity, fixed income, and cash and it’s equivalent.  Endowment models in general usually have a long-term investment horizon, but t...
Read more
"My thought of the day" Real-Time Forecasting How valuable is a financial plan?  Most financial planners do a good job collecting data to build a financial plan for their clients.  However, planners fall short when they start forecasting future results. For instance, planners typically make several assumptions about market returns, inflation, taxes, and spending habits.  Of course, this is what I call hokey-pokey.  The English Oxford Dictionary defines hokey-pokey as: "(the hokey-pokey)   US  A group dance performed in a circle with a synchronized shaking of the limbs in turn, accompanied by a simple song". If we think about this logically, it is virtually impossible to predict future results with so many variables.  I would venture to say my college algebra professor cannot even solve this equation!  Sorry, Dr. Baker.  So, why do so many financial planners still use this method to build a financial plan for their clients?  I am...
Read more