There are plenty of reasons to diversify your portfolio with alternatives. But one will always stand out - inflation.
Inflation is one of investor's biggest enemies. Like a shark, inflation devours the value of your money, shares, and savings with every passing year.
In 2022, U.S. inflation rates have hiked, starting at 7.5% in January, reaching 9.1% in June, and dropping slightly back 7.7% in October.
Inflation - a general increase in prices and fall in the purchasing value of money.
Searching for inflation-proof assets, investors turn to art, watches, and other alternative assets. More often than not, such assets help investors hedge against the fluctuations of traditional finances and protect their portfolios from utter devaluation.
In this blog, we will discuss the benefits of investing in alternatives, and how digital solutions help investors better protect their portfolios from inflation.
3 benefits of investing in alternative assets
Alternative investments market is full of untapped opportunities for retail investors. While institutional investors allocate up to 30% of their assets to alts, individuals can boast less than 6% of investments into this asset class.
The reason for that was a strict regulatory policy imposed by the SEC. But after a few changes, more opportunities emerged, and investors went out on a hunt for alts to add to their portfolios.
What's making alternative assets so popular? A few reasons:
- Low correlation to the Equities Market
- Low volatility
- Ownership rights
Let's dive a little deeper into what each of these reasons mean for an investor.
Low correlation to the Equities Market
Admit it, you wouldn't want to build an equities portfolio and witness its fall when the stock market drops.
Assets like fine art, Rolex watches and such don't correlate with equities.
Low correlation is one of the key reasons why investors turn to alternatives. Being alternative to traditional finances, assets like fine art, Rolex watches and such don't correlate with equities.
This means that the value of your alternative asset portfolio will not change with the value your main portfolio. Equities get pawned down by the bear - the alts will most likely stand unchanged. Equities start growing with the bull - the alts, once again, will not have the urge to do the same.
That makes investing in alternative assets one of the best ways to improve on the diversification of your portfolio.
Low volatility
You may think that volatility is irrelevant in the long run. After all, equities still give you the average 10% in 30 years, despite all the volatility.
A great number. But let's not forget about Einstein's 8th wonder of the world - compounding interest.
Ben Fraser, the CIO at Aspen Funds did the math and calculated the following:
- An investment of $100K with high volatility at 10% average grows into $207,893 in 30 years (some years ended in -50%, others in +30%, averaging into 10% annual gains).
- Same investment ($100K) in alts at 9% average return every year will grow in value 6x more in 30 years, compounding into a $1,326,768 portfolio. As you can see, lesser returns with lower volatility can grow in value far better.
So yes, the average return of alternative assets may seem lower in the long run. But keep in mind the volatility of equities, and what it can do to the compound of your portfolio value over time.
Especially when you look for protection against inflation.
Ownership rights
Buy a few shares of a company, and you'll own a paper asset, a "discounted value of expected future earnings". Invest in a REIT, and you'll still be pretty far away from having your name on the ownership papers.
But buy an oil painting and you'll own an oil painting. Invest in a collection of Rolex watches and you'll own the collection of Rolex watches.
Ownership rights make alternative investments all the more attractive. However, thought about storage, insurance, and maintenance of your physical assets don't.
But buy an oil painting and you'll own an oil painting. Invest in a collection of Rolex watches and you'll own the collection of Rolex watches.
Good thing is today you don't have to worry about the latter.
Investables has already taken care of storage, insurance, and maintenance for assets that we offer. All you have to do is enter into ownership by purchasing shares or buying out the full asset.
Digitising the process of investing in alternatives
In 2022, making your first alternative investment is simple. You don't have to rummage through auctions, visit galleries, and meet at collectors' expos to find the right asset for your portfolio.
With the SEC-regulated platforms like Investables, you can have unlimited access to the world's best-performing alternative assets at your fingertips.
The key benefit of investing via a platform is comfort. The path from opening the website to making your first investment is less than 10 minutes.
In addition to that, all Investables asset are registered SEC Offerings. This means that their condition, value, and storage processes have been vefiried, and that your investment is protected against fraud and unlawful behavior from other investors.
Digital platforms also help investors with liquidity.
Selling an artwork or a pair of Rolexes isn't easy. You have to either find the right buyer on forums, sell your assets to a store, or go through the auction bureaucracy. That's what scares off the investors from alternatives - the draining process of exiting the investment.
With Investables, you don't have to worry about such things. All you have to do is go to your portfolio, create an ASK order, and indicate at which price you wish to sell your assets. The platform will make your order visible to potential buyers, and will match you with the corresponding BID orders.
All you have to do is wait for a notification that your order has been completed, and the money is on its way to your account.
Of course, these are not the only benefits of investing in alternatives online. But with inflation in mind, accessibility, regulation, and improved liquidity can play the key role in having ultimate control over your portfolio.
Bottom line: the key to protecting your wealth from inflation
Looking at the 2022 from Q4, we can say that inflation overall stock market situation were not very kind to investors. And it would be nice to end this year with an extra layer of protection for your assets.
With softer regulation by the SEC and technological advancements in fintech, you can now create that extra layer in less than 10 minutes. All you have to do is go to the Investables platform, register as an investor, and buy your first shares of alternative assets.
Create and grow your alternative asset portfolio with our trending collections, and step into 2023 with confidence in your assets.
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