How to Get Started in Alternative Investments
Part 4 in a Series by Denis Shapiro
Too often, investors are afflicted with CSOS: “Chase the Shiny Object Syndrome.” The recent Bitcoin, Tesla, and GameStop get-rich quick stock crazes are all prime examples of this. But the right allocation of your portfolio is never going to be based on the latest fad-based investment scheme. Instead, it will always be based on your personal needs, individual financial situation, and unique risk/reward profile.
When it comes to understanding how alternative investments play into your ideal allocation, it’s important to rid yourself of the all-or-nothing mentality.
In other words, you don’t have to sell your entire traditional portfolio in order to invest in a new alternative asset. In fact, the two types of instruments can work quite well in tandem.
I meet investors all the time that have sold their entire portfolio of stocks to reallocate all of their funds into real estate or vice versa.
When I ask them why, they often mention just one of the cons of real estate or stocks. I try to explain to them that no asset is perfect, and that the ideal approach is to look for solutions that are complementary, where the pros of one instrument offset the cons of the other. Most of the time, successful investors find that they don’t need to go all in on something new but instead make a small adjustment to their current strategy.
Are Alternative Investments Safe?
Alternative investments-like all investments-have inherent risks. There have been numerous cases of fraud and negligence that have resulted in the loss of investors’ principal, but in reality, this is no different than the Enron and WorldCom scandals that resulted from stocks once prominently traded on Wall Street. In all cases, the risks can be mitigated, but not completely removed, by conducting proper due diligence and leveraging your network and experiences.
How Much Money Do I Need to Invest in Alternative Investments?
While most investments require accredited status, some do not. It’s not uncommon to see crowdfunding platforms with investment minimums as low as $1,000 and for those opportunities to be available to non-accredited investors. However, just because you can invest in a deal doesn’t mean that you should. Sometimes, it’s better to save your money in order to meet the minimum requirements of a more experienced operator than it is to invest in the first deal you come across. From personal experience, the average minimum I have seen for most real estate deals is around $50,000.(Note: I have seen minimums as high as $250,000 on certain deals.)
Alternative investments are not as big of a mystery as some financial experts and advisers make them out to be. I find that good business sense and sound investment practices apply just as much to alternative investments as they do to traditional assets, and there really is no “easy” formula for getting started and working your way toward success.
It all comes down to investing in your education, leveraging your experience and network to find the right opportunities, conducting proper due diligence, anddiversifying your portfolio in ways that make the most sense for your unique situation.
In the last few years, I’ve developed a great admiration for the opportunities that alternative investing has brought to my life. It has allowed me to meet some of the most amazing people outside of my previous network from all around the world who strive to live a well-rounded life that incorporates exciting experiences, charitable donations, and a family-first mentality. From my partners in the investment club that I founded to my advisors on my own private equity fund, some of my dearest friendships have come from the alternative investing world.
If you liked this article and wish to continue on your path in learning about alternative investments, please make sure to check out my other educational articles as well as my book, The Alternative Investment Almanac: Expert Insights on Building Personal Wealth in Non-Traditional Ways.
Disclaimer: The information presented in this article is for informational purposes only and does not constitute professional financial or investment advice. The author does not make any guarantees or promises as to the results that may be obtained from it. You should never make any investment decision without first consulting with your own financial advisor and conducting your own research and due diligence. Even though, the author has made reasonable efforts to ensure that the contents of this article were correct at press time. The author disclaims all liability in the event that any information, commentary, analysis, opinions, advice and/or recommendations contained in this article results in any investment or other losses. Your use of the information in this article is at your own risk.