How Alternative Investments Can Help Diversify Portfolios

Investment alternatives can provide some unique advantages in a long-term investment portfolio. These include greater diversification, higher potential returns, non-traditional portfolio sources of income and potential tax gains.

Alternative investments include:

  • Private Equity Offerings
  • Hedge Fund Offerings
  • Private placement of real estate
  • Disclosed funds that are not traded
  • 1031 exchanges
  • Exchange funds
  • Non-negotiated business development companies
  • Non-negotiated real estate investment trusts
  • Managed futures funds
  • Commodities

Despite the growing popularity of cryptocurrencies, it should be noted that they are not alternative investments and should be considered separately as part of a broader investment strategy.

Depending on your current asset mix and long-term goals, adding alternative investments to your portfolio can help you access new asset classes or investment strategies. Alternative investments can provide exposure to non-traditional asset classes, such as private equity, private credit, private real estate, or hedge funds.

The importance of portfolio diversification

Portfolio diversification can be a useful way to reduce risk and hedge against volatility. Since alternatives generally show little or no correlation with traditional equity and fixed income markets, they can be a solid option for those looking to diversify.

Increased portfolio growth and revenue opportunities

Another reason investors are looking for alternative investments is their potential to increase portfolio returns. By providing exposure to a wide range of assets, alternative investments can help investors achieve growth or access sources of return unrelated to the broader stock and bond markets.

However, it should be noted that alternative investments tend to be more complex than other assets and often require special knowledge. Working with a financial professional can help you get a clear picture of where potential returns are and whether alternative investments support your goals and risk appetite.

Tax gains and deferred taxes on capital gains

The sale of assets can often lead to tax liability on capital gains. Alternative investments can serve as a way to help mitigate or delay the impact of these obligations. Depending on investment objectives, eligible opportunity zone funds, 1031 exchange funds, and exchange funds are three tax-advantaged solutions that can help manage potential capital gains tax liabilities.

Other factors to consider

  • Alternative investments are generally illiquid long-term investments, and usually have investor requirements that must be met.
  • Many alternative investments are non-public offerings and may lack transparency around fees, investment types and include additional risks compared to other listed securities.
  • Alternative investments can include complex investment or negotiation strategies, non-traditional ownership, opportunistic strategies, leverage, and more.

How Ameriprise Financial Advisors Can Help

If you are thinking of adding alternative investments to your portfolio, Ameriprise’s financial advisors can help you answer questions and provide recommendations tailored to your financial goals and investment goals.  Ameriprise’s financial advisors  work with you to review your portfolio and offer personalized recommendations to support your financial goals, time horizon, and risk tolerance.

Best of all, Ameriprise makes it easy to have an initial follow-up conversation. If you’re ready to learn more, contact an advisor to find out how alternative investments might fit into your asset mix.

This information is provided only as a general source of information and does not constitute a solicitation to buy or sell any securities, accounts or strategies mentioned.  This information is not intended to be used as the sole basis for investment decisions, nor should it be construed as recommendations or advice designed to meet the specific needs of individual investors.  Please seek advice from a financial advisor regarding your specific financial situation.

The initial consultation provides an overview of the concept of financial planning. You will not receive written analysis and/or recommendations.

Ameriprise Financial, Inc. and its affiliates do not provide tax or legal advice. Consumers should consult their tax advisors or lawyers about their specific situation.

Alternative investing includes a variety of strategies and structures designed to be low or unrelated to traditional equity and fixed income markets with long-term liquidity expectations. Alternative investments involve substantial risks and can be more volatile than traditional investments, making them more appropriate for investors with above-average risk tolerances.

Diversification and asset allocation do not guarantee profits or protect against losses.

Investment products are not insured by the FDIC, NCUA, or any federal agency, not deposits or liabilities of, or are secured by, any financial institution, and involve investment risks including potential loss of principal and fluctuations in value.

Investment advisory products and services are available through Ameriprise Financial Services, LLC, a registered investment advisor.

Ameriprise Jasa Keuangan, LLC. Miembro de FINRA y SIPC.

© 2021 Ameriprise Finance, Inc. All rights reserved.


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