A widely-used term with an even wider range of meanings in today’s modern investment landscape.
We’ve got you covered.
First, to understand “alternative assets”, you have to understand what they’re an alternative to. For decades - centuries even - those looking to invest money and earn more than bank deposits have generally looked to two key, traditional investment vehicles: stocks and bonds. Now, there are numerous ways to invest in stocks and bonds, whether through individual securities, mutual funds, or ETFs, but they sit at the core of almost any traditional investment portfolio.
So, when we talk about “alternative assets”, we’re generally speaking about assets outside of the scope of those very common and traditional buckets. It’s a loose term that encompasses all sorts of wide-ranging assets, but the fundamental idea is this: alternative assets are assets other than stocks, bonds, and cash that an investor allocates capital to with some degree of financial intent - whether that’s capital appreciation, downside protection, or hedging factors like inflation.
In the Wall Street world, alternative assets most frequently refer to things like Private Equity, Real Estate, Hedge Funds, and Commodities. But for most people, those categories are opaque or inaccessible. And in today’s investing ecosystem, that definition is relatively narrow in scope.
Sure, alternative assets can refer to land and buildings, they can refer to gold and silver, but they can also refer to interesting assets at the intersection of passion and profits. Maybe that’s what brings you to our site at Altan Insights. Art, wine, luxury items, collectibles (sports cards, comic books, etc.), memorabilia - all of these things are gaining greater attention as alternative assets with each passing day.
Why? Because their financial track records are intriguing.
Take art for example. Masterworks data suggests that the Contemporary Art market has appreciated by 13.6% annually from 1995 through the first half of 2021. That’s ahead of a 9.5% annualized total return for the S&P 500 over the same period. (https://www.masterworks.io/)
Since January of 2008 through the end of 2021, the PWCC 100, an index tracking high-end vintage sports cards, has returned an eye-opening 1,276% return, while the S&P 500 has returned 230% over the same period. (https://www.pwccmarketplace.com/market-indices)
Or how about wine? Since 2006, the Liv-Ex 1000 index has similarly outperformed the S&P, while also offering low volatility and minimal correlation to traditional asset classes. (https://vint.co/)
The point isn’t necessarily to beat stocks. It’s the idea that these assets - which people are passionate about - have historically offered strong financial outcomes, and most importantly, those outcomes are often unrelated to stock and bond performance. That makes them very valuable for diversification purposes.
There’s nothing wrong with stocks and bonds, but the next time you put money to work, you might consider some highly viable alternatives.
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