When you are constructing an investment portfolio, you should always consider the full complement of your financial objectives. Aside from stocks and bonds, there assets for you to consider potentials might be more
A staple of investment advice is that you should diversify – that is, you should invest money across different types of assets, such as stocks (collectively known as ‘equities’), fixed-income securities such as US government bonds, and cash and cash equivalents such as money market instruments.
Real Estate
Real estate – including real estate with land – can be an investment that offers investors a range of different return opportunities. One of the most well-known is residential investment properties (including single family homes and multifamily apartments). Quite often residential properties offer relatively stable income stream with an appreciation of the capital value.
Commercial real estate (CRE) covers such a broad category, including office buildings, industrial facilities, retail shops and multifamily apartment complexes, that it is not as simple as buying a single-family home and using your ‘gut’. Your CRE investment is more likely to pan out if you do your homework and find something that matches your expertise and interests. Even among the subcategories within real estate, some options are better than others.
They might like value-adds such as ‘buy, rehab, rent, refinance, repeat’ or BRRR investments with higher risks and rewards (eg, purchase at significant below-market value and hold until its appreciation enables cash-out refinance). These investments take typically five to seven years to reach internal rates of return. Special purpose CRE properties (eg, data centres or hospitals) probably require sophisticated customer-centred designs, layouts, renovations and facelifts to become attractive investments.
Privately-Held Companies
These include firms that might be poised for rapid growth, could have higher returns than the market as a whole or use proprietary technology in interesting ways. Privately held companies add diversification to your portfolio because these opportunities might not otherwise be available on the same scale through the traditional stock market.
This class of assets offers these investors diversified sources of income and return with less volatility than the older fixed income asset classes. The required, minimum investments of $5 million on commingled funds. The strategies included in this same class include commercial real estate debt (CRE), private credit, life settlements, insurance policies, trade finance deals or private distressed investing strategies – all of which can provide long-term clients willing to take on the additional risk a terrific avenue for
Natural Resources
Natural resources play a key role in current global economic growth, including raw materials such as oil and gas, metals such as iron ore and copper and those needed for the transition to a low-emission economy. There are a lot of ways for investors to get exposure to natural resource investments, such as corporate bonds, exchange-traded funds (ETFs), master limited partnerships and other REITs. There is so much to like about natural resources: they diversify a portfolio, they act as inflation hedges, and they can generate returns via price appreciation or dividends. It’s important for investors to understand that you can rely on natural capital assets for a steady income, but sometimes they will be volatile. You need to understand your risk profile, your investment horizon and how much exposure to different asset classes you already have, and decide accordingly. You might need professional help; if so, a good firm can make sure you’re getting the exposure you want.
Physical Assets
An effective portfolio requires investments across various asset classes in order to withstand economic storms, with physical assets like gold or real estate proving especially useful during stock and bond declines. Furthermore, diversifying your investments allows you to offset losses in one type of investment with gains in another – providing a safe way of meeting financial objectives more easily.
You can find higher returns and bigger gains with specialty investments such as precious metals, art or private equity, but these investments are more risky and less liquid than normal stocks and bonds. At least investigate if these investments – dim sum bonds and free-trade are for you only if you have the knowledge to get fair market prices and know whether you’re paying too much.
