Alternative Investments?

I hope your June is going well. It’s been a long time coming, but we’re finally starting to get the summer weather we’ve been waiting for.

Last month, we spent some time discussing some of the more “mainstream” asset classes. I refer to them as mainstream because stocks or bonds are accessible to almost everyone. Now, I’d like to go into some detail on alternative investments.

Alternative investments generally don’t fall into any of the conventional asset classes. What makes them stand out is the higher minimum investment required and the barriers to entry that are present. Whether it is a connection or a certain amount of capital, there are barriers in place that prevent everyone from utilizing alternative investments.

Private equity is one such example. The business model involved purchasing a private business (usually when it is distressed), restructuring it, and then selling at a profit. By doing the equivalent of “flipping” a private company, private equity allows the investors to exert actual control over the fate of their investment (public investments don’t really allow for this).

As you would guess, the purchase of a company is not something most investors can do on their own, so you either require a large amount of capital or a group of other investors to form a fund with.

You might know venture capital by other names, such as angel investing or seed funding. The model follows a similar thread to private equity, but with early stage companies rather than distressed companies. This is riskier, but offers the chance of much higher returns. The idea is that you can get a larger chunk of a small company before it blows up, and then reap massive returns.

Real estate is another area that requires high amounts of capital to invest in. This barrier creates two large opportunities. First, you can capitalize on the high cost of purchasing a home by buying your own real estate and renting it out to tenants who can’t afford to buy yet. When you do this, not only are you earning rent that pays down your mortgage, but you’re also exposing yourself to upside on the property’s value.

The other opportunity within real estate is to provide mortgage financing. When a property is purchased, the buyer usually has to borrow a sizeable portion of the total value in the form of a mortgage and pay it down over time. This provides you with a bond-like investment, but usually with a higher interest rate. Additionally, you would hold a claim on the property if the borrower went into default, which limits your downside risk.

Between the four types of alternative investments mentioned above, you have the opportunity to earn high returns that many can’t even dream of. At Kismet Wealth Group, we have developed expertise and networks in each area and would be happy to assist you in gaining exposure to your desired area.

If private equity, venture capital, rental properties, or mortgage financing sound like something that would suit your portfolio, give us a call and we’ll schedule a meeting to discuss it further.