7 Benefits of Alternative Investments

When you think of the term "alternative investments," you likely think of complicated investments or investments reserved for institutional investors. However, that is no longer the case.

The alternative investment class has opened up with recent regulation changes, making it an option for investors of all levels. From real estate to precious metals, innovations in Fintech are now making alternative investments attainable for everyone.

Ready to shake up your investment portfolio? Whether you have a well-rounded portfolio or are just starting, alternative investments can be a great option.

Benefits of Alternative Investments

There are many benefits ranging from tax incentives to additional forms of income. You'll need to decide if some type of alternative asset will provide you with what you need to achieve your wealth-building goals. While there are many benefits of alternative investments, below are a few to consider.

1. Limited Ties to the Stock Market

For those who have invested in the stock market, ups and downs come with the territory. You have likely experienced some nice wins and bitter disappointments as various factors affect market fluctuations.

While these fluctuations can be exhausting when you are younger, they can be extremely stressful when you are close to retirement. Some don't want to deal with the risk.

One way to avoid having all of your investments tied to such market volatility is through diversification. Alternative assets are a great way to diversify. They can help provide protection against the market's volatility and shield some of your invested assets.

2. Less Volatility

As mentioned above, the share prices of stocks will fluctuate for many reasons. Often, these reasons are not even tied to the asset or even the company's performance. With private alternative investments, you avoid the inconsistency with public investments, and a real asset often backs your investment.

With alternative investments, you may also find more steady and consistent returns than more traditional assets. Often these returns will not be as significant as wins in the market, but the overall return will be higher.

3. Passive Income

Your time is valuable and, for many investors, they would rather sit back and watch it grow. Managing your stock portfolio can be daunting and requires a significant amount of time, work, and research.

Investing in other types of alternative investments like real estate that you own and manage can also take up a lot of time. If you purchase rental properties, you may be busy with managing the property and employees. If you flip homes, you will have to deal with renovations or the contractors handling them.

With some alternative investments, you can enjoy the advantage of passive income while others take care of the management aspects. Alternative strategies don't have to become a full lifestyle shift.

4. Tax Benefits

Alternative investments also come with many tax benefits as well. Two of the most beneficial tax benefits are their treatment as long-term capital gains and their pass-through depreciation. These tax breaks allow you to keep more of your profits.

Real estate funds have depreciation expenses deducted from net income. When the investment is in oil and gas, you will enjoy ideal depreciation treatment. This will help lower your overall taxable income.

If you invest in alternative investments that make you part owner, you will have a portion of the income considered long-term capital gains. This will result in better tax treatment.

You can also invest in alternative investments in your retirement plans, such as a Solo 401k or IRA. This will allow you to grow some of your investment either tax-deferred or tax-free.

5. Greater Opportunities

With alternative investments, you will be open to opportunities that may not be available on the stock market, or in traditional asset classes. This will provide you with the opportunity to make investments that may be of greater interest to you.

It could also give your portfolio the diversity you've been looking for. You get more options with things like venture capital, real estate, crypto, and more.

With no ties to the market, you will also be able to weather emotionally charged financial downturns without escorting to panic selling.

6. A Solid Income

Many private alternative investments are designed to be cash-flowing. This means that you can expect to get money back on either a monthly or quarterly basis. Some investments produce solid incomes of 8 to 10% annually. This can provide you with an additional stream of income without cashing-in investments.

Many investors struggle to get cash out of traditional asset classes, such as CDs. Often the return is in the lower single digits. So investors struggling to get cash flow from their illiquid investments will find alternative investments ideal.

7. Ownership

When you invest in the stock market or public investments, you are buying a paper asset. There is no actual real asset that is owned. Even with real estate investment trusts, you are likely far from having your name on the title of any property it holds.

Many alternative investments come with more tangible ownership. Whether it is property or actual products, such as resources, your investment is backed by a physical, real asset.

For example, some alternative real estate funds include the investors on the title. This means that even if the fund were to dissolve, the investors would retain ownership of the property.

Now's the Time to Move Past the Traditional Investment

With the many benefits of alternative investments, it is easy to see how they can make a great addition to any investment strategy. Even the average investor with little investment experience can dive in and be successful with them.

These assets may have lower minimum investment requirements meaning they're more widely accessible. And, that investor gets the benefits of a more diversified portfolio at the end of the day.