How to protect wealth after COVID
For many investors approaching retirement age – or anyone concerned with protecting their wealth – the economic impact of COVID-19 echoes the losses of the Great Recession.
In 2008, investors with traditional portfolios and 401 (k) – assets that many believed to be immune from massive market corrections – saw their retirement funds fall by 20% or more.
At the time, target date funds with pensions beyond 2020 suffered losses of over 30%, as many far-dated funds were heavily allocated to equities. But these investors still had years to continue saving, and many were able to take advantage of the bull market that began in 2009 and rebuilt their wealth over the decade that followed.
But the COVID-19 pandemic, and the market losses it caused, rekindled fears among many investors that the same mistakes could be made again – especially as many affected by the Great Recession have padded their portfolios with stocks to capture market gains, holding large amounts of equity as their retirement date approaches.
Today, many are turning to alternative investing as a solution, seeking out uncorrelated assets like private equity, commodities and energy to protect their portfolios from another stock market crash – and increase their wealth if their traditional investments suffer another loss.
What are alternative investments?
Alternative investments describe assets outside of traditional equity, fixed income, or cash markets – things like private equity, commodities, tangible assets, energy, and real estate. Traditionally, investors have used these assets to diversify their portfolios and improve their returns, as assets such as private equity tend to generate much higher profits.
Because the alternatives generally have a low correlation with standard assets – meaning that their value tends to counter the stock or bond market – the alternatives offer an effective hedge against inflation and remain a leading strategy for growth. agressive.
While alternative investment portfolios – like those provided by alternative investment funds – may be new, investing in alternative assets has been around for some time. Anyone who has invested in real estate, for example, or who owns private equity in a company, keeps an alternative asset. Investing in energy commodities, such as oil and gas drilling, has also been a common path to alternative investment..
With significant tax incentives, many investors are turning to energy assets to take advantage of inflation hedges and seek quick returns on an investment in an upcoming energy project.
Among real estate and commodities, private equity remains the alternative investment with the highest risk and the highest rate of return.
How to invest in alternatives?
It’s important to recognize that alternative investing may not be the right choice for every investor, and while investing in a diversified alternative fund mitigates much of the risk that investors would see if they invested in one. Private placement by themselves, alternative assets such as private equity continue to expose investors to risk.
Alternative investments can be a method of choice for investors approaching retirement who wish to invest in assets that continue to grow their wealth, as well as for young investors whose already diversified portfolios allow them to pursue more aggressive strategies.
In my experience managing an alternative investment fund, I have learned to guide investors to ask a few key questions to align the possibilities of alternative assets with their investment objectives. Are you looking to invest a discrete amount of capital in more aggressive passive investing strategies? Are you nearing retirement and want options to grow your wealth beyond the capacity of a traditional equity portfolio? Are you looking to research tax incentives? Or do you want a quick turnaround in investments in commodities like energy?
Once you have answered these questions for yourself, you can begin the process of choosing an alternative investment fund. With such a fund, accredited investors can spread their investments across a range of opportunities, from private equity in emerging startups to investments in high-yielding and seasonal commodities, like oil and natural gas.
Many hedge funds research and review proprietary private placements, bundle these private equity opportunities so that investors can spread wealth across multiple companies, and provide access to high returns from commodities such as oil and gas drilling. natural gas. Make sure you choose a fund that mitigates the risks associated with alternative investments in assets such as private equity. The fund must do the work of researching companies and ensuring that investors are not significantly exposed to high cost private placements.
For those approaching retirement – with no immediate need for liquidity in their investments and enough wealth to allocate their assets in the alternative sphere – an alternative wealth fund could better optimize an investor’s portfolio and secure a path to creation. wealth beyond the stock and bond markets.
The information provided here is not investment, tax or financial advice. You should consult a licensed professional for advice regarding your specific situation.