What Are Alternative Investments, and How Could They Impact a Portfolio?

These days, when you’re looking to invest, you might hear the words “alternative investments” thrown around by financial planners or in ads. After all, we at Cadence clearly advertise our platform as a place for “Alternative investment opportunities with zero fees.”

Yet if you’re new to investing, or simply used to stocks and bonds and nothing more, alternative investing raises a number of questions:

What are alternative investments?
How do they differ from regular investing?
What are they an alternative to, exactly?

Fortunately, the answer is a lot simpler than you might think.

What are alternative investments?

Alternative investments are investments that deal outside of the realm of standard assets — that is, stocks, bonds, or holding cash. This term is incredibly broad, yes, but covers many different types of investments, including (but not limited to):

  • Venture capital investments
  • Private equity
  • Hedge funds
  • Real estate
  • Commodities
  • Private debt

Not only are these investments alternatives to investing in standard assets, they often move in different directions to traditional investments. For instance, real estate investments do not have a 1:1 correlation with investments on the stock market. Stocks can go up or down, but real estate assets don’t necessarily follow the patterns, percentages, and values of stock market indices. They are their own world entirely.

In recent years, certain companies have allowed users to invest in new asset types like physical products. Investors can now buy and sell apparel and luxury consumer goods based on supply and demand, or invest in a percentage of an artwork and make potential gains when said artwork is sold. These assets change in value different from stocks and bonds, and at different frequencies, too.

Who can invest in alternative investments?

There are some alternative investments open to all investors. Anyone meeting the right conditions to buy a property can invest in real estate, even for the purposes of treating that property purely as an asset to sell in the near future.

Many alternative investment vehicles and platforms, however, require one to be an “accredited investor.” This is a special designation only when met by certain conditions that allow the designated investor to buy, sell, and/or trade specific alternative assets. (For more information on who can become an accredited investor, read our article here.)

Each alternative investing platform, service, or brokerage will let investors know upfront whether or not they must be accredited to invest, as well as any additional qualifications required (eg. location, age, etc.).

How can alternative investments impact a portfolio?

Many investors look to alternative investments to diversify their portfolio. If one’s portfolio is entirely based on stocks and bonds, and one or both of those markets sees an overall downturn, then the value of the portfolio itself decreases.

Introducing alternative investments, however, could be a hedge against such a downturn. For instance, if you invest in real estate, stocks, and bonds, your stocks and bonds could decrease in value at times, while your real estate assets could stay static or even increase in value. The opposite could happen as well, as well as any combination of changes in value.

In the end, however, people invest in alternative assets mostly to diversify asset types for the purpose of risk management and decreasing potential losses.

What are Cadence’s alternative investments?

Cadence offers alternative assets in the form of high-yield, short-term investments into private debt. There are various asset classes on our platform at any one time, and, like traditional investments, there is still risk involved.

Assets on Cadence, however, are uncorrelated with those on the stock market. This means they are not impacted by the ups and downs of stocks and indices, working entirely separate from the most common type of investing. This affords our investors the opportunity to possibly mitigate some risk in their overall portfolio, all while potentially earning interest on their original investment.

If you are an accredited investor, you can invest in assets on Cadence with zero fees. Click the button below to get started on your alternative investment journey.

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