Shaking Up Your Portfolio with Alternative Investments
Innovative Advisory Group realizes that portfolio diversification is not just limited to investing in different asset classes of stocks, bonds, and mutual funds. Over the past century, this method of diversification has proven effective, but recently the stock and bond markets have been behaving in a more highly correlated fashion, rising and falling together. This increased correlation can lead to increased portfolio risk by minimizing the effectiveness of diversification as a risk management tool. Innovative Advisory Group has found a solution to this problem.
Alternative investments offer an opportunity to invest in assets that do not have a high correlation to publicly traded investments. Some well-known university endowments have 50% or more of their investments in alternative assets for this reason. While alternative assets are not necessarily safer or more profitable than traditional investments, there may be good reasons for including them in an investment portfolio.
What is an Alternative Investment?
The term “alternative investment” is typically used to describe non-traditional asset classes or investment types such as hedge funds, derivatives, private equity, managed commodity futures, or even timber REITs. These kinds of alternative investments are traded publicly and are part of many institutional portfolios.
Recently, the term "alternative investment" has become trendy in the financial services industry. It is now being used to describe new approaches to investing rather than just the assets. These alternative investment strategies could be used to describe investments that are anything but long-only. This would include funds that are long-short, hedged with derivatives, quant-based methods, or many other new strategies.
Because of increased institutional interest in assets such as these, a number of them have become much more highly correlated with traditional investments since early 2000. Therefore, at Innovative Advisory Group, we look at “alternative investments” a little differently. We characterize alternative investments as assets or investments that are not publicly traded, have a low correlation to traditional investments, are too small for institutional investors, are illiquid, are not easily securitized, and are not reliant on the publicly traded markets to be profitable. These alternative investments include investments in: physical real estate, tax liens, gold and silver, horses, livestock, farmland, timberland, private company stock, intellectual property, website URLs, individual structured settlements, and many more.
At Innovative Advisory Group, we specialize in finding assets that have still the potential to provide genuine diversification as a risk management tool.
Why should I consider using alternative investments in my portfolio?
Peter Lynch famously said, "Invest in what you know." We believe this should apply to all investors. Investing in alternatives provides many benefits such as diversification, transparency, control, and the potential for out-sized rewards compared to the risk taken. However, these benefits can be lost by investing in assets that are not familiar to you.
During the financial crisis of 2008, many of the US and global financial institutions had questionably sound balance sheets. As an investor, there was a lack of transparency of what the potential problems were, and because of this many people lost significant amounts of money. However, an investor who chooses to invest in assets such as real estate, tax liens, or livestock, could have more transparency with the asset if they know what they are doing or have good advisors.
Why you should consider Innovative Advisory Group.
- Unique - Innovative Advisory Group is a full-service wealth management firm with an uncommon skill-set of experience investing in both traditional and alternative assets. This allows us to focus on finding innovative investment opportunities and creative approaches to investing in those assets.
- Expertise - We are well-known industry experts in the utilization of alternative investments inside retirement accounts.
- Experience - The principals of Innovative Advisory Group have over 30 years of combined experience investing in traditional and alternative investments both personally and for clients. This experience allows us to better understand the inner workings of these investments and the pitfalls.
- Strong Risk Management - We believe that managing risk is the most important part in the investment process, and that is why we put so much emphasis on it with all our clients.
- Innovative - Our firm has an innovative culture. We don't accept things as they are, but rather we look for better ways to accomplish the same goal in a more efficient and productive manner.
- Transparent - We believe transparency is an important factor in all our relationships with our clients. Therefore we are fully transparent with our clients and their families.
- Trust - We have a fiduciary responsibility to our clients legally and ethically. Trust is earned and we work hard to deserve the trust of our clients.
- Unbiased Fee-only Advice - We do not sell products. We can assist our clients in finding investments that are suitable for them, but we do not get compensated for selling any investment or product.
Our platform is not intended to replace traditional investments but to supplement them. We introduce investors to strategies designed to provide true diversification. The ultimate goal is a well-balanced portfolio in terms of risks and returns, assets and styles, and diverse, non-correlated, responses to market conditions.
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