Alternative Investments

Overview

Alternative Investments are known by that title because they are, in fact, an alternative to the stock market and the bank.  Most people buy into the idea that there are only two places to invest money—the stock market and the bank.  Not true.  In fact, alternative investment business models are all around you everyday, and you probably never even knew. 

Things to Know:

• These partnerships can offer annualized returns in the 6% to 18% range, paying distributions quarterly or monthly. 
• They typically have a holding period of 3 to 10 years. 
• A lot of these investments are appropriate for qualified money such as IRAs. 
• The public programs will have a minimal investment requirements, typically in the $1,000—$5,000 range, whereas the private versions will likely be in the $25,000—to $100,000 range.
• Each partnership is different, so read each prospectus and brochure carefully. 
• Although there is no stock market risk associated with partnership programs, they do have risks and are certainly not guaranteed. 
• The three most common risks to be aware of in this category are liquidity, business, and financial.

Liquidity Risk

It takes time for an alternative investment’s business model to work.

It has to do something, and that will take a certain amount of time.  Therefore, when you invest in a partnership, you need to understand that you have committed your money to a business model for a specified period of time, so that it can do what it does to try to make you money.

Understand how and when your money may come back to you from this investment, and how long the anticipated holding period is.  Consider the underlying business model to make sure that it makes sense, but even then, know that if that sector of the economy has problems, your investment in that sector through a partnership might, too.

Finally, consider the financial vulnerability of the partnership.  In many cases, this particular risk can be mitigated when the investors actually own the asset (real estate, equipment, etc.).

CATEGORIES & BUSINESS MODELS

Just a few of the options to consider

Real Estate

The IHOP, Walgreens and your office building could be part of a real estate partnership.

Equipment Leasing

The rail cars and the shipping containers they were hauling, the display shelves at Home Depot and Pet Smart, the jet engines on the airplane, and the computer equipment at your office all could be part of equipment-leasing partnerships.

Charged-Off Receivables

Delinquent credit card balances could be part of a charged off receivables partnership.  

Speak with a Recommended Financial Professional about alternative investments >