Misconceptions about alternative investments are out there, and they are largely the result of a handful of negative experiences that simply don’t compare in number to the positive ones. Investment does require time, effort, and the willingness to take on a bit of risk – but alternative investments can be some of the soundest and least risky of your options.
Get to know the myths behind alternative investments. Learn the truth behind them, too. Knowing the facts about them may help change the way you think – and, consequently, lead you to one of the greatest money-making opportunities of your life.
Myth: Alternative Investments Are Only for the Very Wealthy
There was a time when investing in general seemed like only a practice accessible to the rich. Now, new ways of packaging investment products have allowed those who may have trouble overcoming typical investment barriers to access money-growth options outside of stocks and bonds.
Individual investors with decent savings can invest in open-end mutual funds or cash-value life insurance at a low buy-in or premium. Upon successful growth, those same investors can move into registered closed-end funds or unregistered funds, which have significantly higher barriers to entry.
Fees may also scare away potential investors, but if they exist, their amounts largely depend on the type of investment that the investor undertakes. Partnerships, for example, usually include management and performance fees. But mutual funds charge only management fees without performance fees, and they tend to reflect expected growth and initial investment.
Myth: Alternative Investments Aren’t Part of a Diverse Portfolio
Alternative investments are, in fact, part of a diverse portfolio – but there’s a catch: it’s wisest to invest in multiple alternatives to proliferate that diversification. Adding a single stock or mutual fund doesn’t lead to diversification, so a single alternative won’t really help diversify much, either.
That’s because, as an investor, you’re concentrating your risk on that single investment. If it falters, your portfolio performance suffers. But when you diversify your alternatives, you mitigate that risk and enjoy a healthier overall return. It’s all part of keeping your assets from correlating, a practice that has a proven history of improving investment growth.
Myth: Investment in Alternatives Makes Money Inaccessible
The umbrella of alternative investments is a sizable one; that means, of course, that while some of those investments may lock in your money for longer than you want it locked in, not all alternatives come with the same requirement. Liquidity depends largely on the investment type – for instance, some mutual funds give you access to cash every day.
Your potential to earn often corresponds to the amount of time for which you must keep your money invested. Limited partnerships, in which investments can be made with limited liability, may have liquidity restrictions of 30 days to restrictions as long as 10 years.
Myth: Alternative Investments Don’t Grow Reliably
You may have caught on; risk is part of every single investment opportunity, so growth is never a guarantee in most investments. That’s why many investors don’t offer money silently – they instead find ways to help their investments grow.
But for those who want to lower risk and see reward more regularly, there are types of alternative investments like whole life insurance that offer growth that isn’t tied to volatile entities like the stock market.
For help navigating alternative investments before or after retirement, get in touch with an Americans for Life specialist who can help guide you through the myths – and the rewards.