Alternative investments are a unique asset class different from a traditional portfolio of stocks and bonds. Their characteristics are different from traditional investments. Alternative investments are gaining the market due to their better return profile enabling investors to make huge profits.
There are several common misconceptions that individual investors have regarding alternative investments. Some of them are highlighted below-
Alternative Investments are only for institutions and high-net-worth individuals:
The foremost misconception made about alternative investments is that is not for retail investors. People who are beginners and unaware of the market make such misconceptions easily. Retail investors have greater access to alternative investments than before. There are different categories innovated for the retail investors such as ETF’s that are the exchange traded funds, mutual funds, liquid alt, and so on which have increased the options for more and more investors. These categories enable investors to invest with a minimal amount of money, it helps them to have an exposure to the alternative asset class. Thus, now alternative investments are no more available only to HNI’s but also for retail investors.
Alternative Investments will help to diversify the portfolio:
It is true that alternative investments help to diversify the portfolio of stocks and bonds because of their low correlation with traditional investments. But by adding just one type of alternative investment strategy will have limited impact, and it may also lead to concentration risk. Thus, you need to make a proper analysis of different categories of alternative investments and their effect on your existing portfolio. Make an efficient exposure to get the benefit of diversification. That is why it is asked not to invest all your money in a single alternative vehicle.
Alternative Investments are too expensive:
It depends upon the type of vehicle you choose in alternate investment. Alternative investments certainly have higher fees than traditional investments. But the high fees comes along with the high return. If your manager is not fulfilling the required expectations, he cannot charge more. Many time fees depend upon the positive performance of the fund so as to ensure manager and investor interests are aligned.
Along with this, alternative investments include some type of incentive or performance fees. A manager will be able to access to incentive fee only when he crosses a certified hurdle. There are also clawback provisions. The managers need to payback management fees before they can earn performance fees. Thus, an investor must have a discussion of fees and its impact on returns with the manager before proceeding with the investment. This helps the investors to save his money and not pay double layered fees for the same return.
Several corporations are there which provides strategies to get the optimum return. Harbor City Capital Corp. has designed a unique investment strategy called ‘Digital Marketing Arbitrage’. Harbor City Investment is a Global alternative asset investment group specializing in building, buying, and monetizing digital media assets.
