Alternatives available to investors
This guide provides a complete overview of the range of alternatives that are available to investors, including REITs and BDCs, energy and leasing programs, alternative mutual funds, and private placements.
an introduction to alternatives
you can diversify your portfolio by selecting a wide variety of investments.
When you describe an investment as alternative, what you’re saying is that it is an alternate to, or different in some essential ways from stocks, bonds, and cash. Most traditional investments are publicly available to any investor who has money to pay for them, and liquid, which means they can be bought and sold when you wish, though not always at the price you would like.
Most alternative investments, on the other hand, are sold by broker-dealers or financial advisors. In most cases, you must meet net worth or income requirements to be able to invest and be willing to hold the investment for a specific period, which may be as long as ten years or more. That’s why the majority of these products are described as illiquid.
Though they share similarities, alternative investments are not all alike. There’s significant variety, just as there is among traditional investments, in the ways they generate returns and the levels of risk to which they expose you.
Reits
Commercial real estate can help diversify a traditional portfolio.
A real estate investment trust (REIT) is a corporation that invests in commercial real estate. The REIT raises capital from a group of investors and uses it buy buildings if it’s an equity REIT or loans on buildings if it’s a mortgage REIT. Hybrid REITs typically own both properties and mortgages on properties.
A REITs goal is to provide a steady stream of income and potential capital gains to its shareholders. With an equity REIT, the income comes from the rent its buildings’ tenants pay. A mortgage REIT generates income by collecting interest and principal payments on the loans it owns.