Ask An Advisor Series – Alternative Investments

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Ask An Advisor Series – Video Transcript

Lee Shertzer:
Hello there. My name is Lee Shertzer of Stewardship Advisors here in Mount Joy. I’m here today with Mark Brinser and we are starting a new series called Ask An Advisor.

Mark Brinser:
The goal of this video series was just to answer some questions that we’ve been getting from clients. Oftentimes, there’s the old adage, right? If somebody’s thinking it or somebody’s asking it, there’s a lot more that are doing the same. So, we thought this would be a good chance to answer some of those questions. If you have a question you’d like answered in the post below, you can actually submit a question as well as if you look at the monthly newsletter that comes out, there’ll be a link in there. So, if you have a question that you want to answer, you can put it in one of those two places.

Alternate Investment Options

Mark Brinser:
So, for the first question, we’re going to be talking about this idea around is there’s something besides stocks and bonds to invest in? And we’ve been getting that question a lot probably because of the volatility in the markets. So, we want to address that today. So, Lee, you know, what else is there besides stocks and bonds that if people are interested in exploring, they could?

Lee Shertzer:
Yes, we would like to introduce the concept of alternative investments, and so what are alternatives? Well, as Mark said, it is an alternative to the traditional stock and bond investments that most people have experienced.

This would be anything from you know, real estate, which would be things like maybe KKR or CBRE, private equity, like Apollo, and even a local company like Noble investments. It could be commodities and hedge funds. A lot of people have heard these items like hedge funds and private equity, talked about a lot in the news and in today’s world. So, these would be things that traditionally have only been available to multi-million-dollar net worth people.

Characteristics of Alternative Investments

So, Mark, what are other characteristics of alternative investments?

Mark Brinser:
Yeah. So, there’s really some things that you really want to keep in mind when you start talking about alternatives, and probably the biggest one and the most important one to keep in the back of your mind is these investments tend to be very illiquid. So, these aren’t something that you can get into and out of on a daily basis, right? I mean, we’re all accustomed to stocks, you know, or ETFs where you can buy and sell them on an exchange.

There’s generally no public exchange for these investments so it’s going to be really key that if you do explore these a little bit more and we’ll talk about this more in other blog posts, but you know because it’s so illiquid this should really just be probably for a smaller part of your portfolio, so that’s one key differentiator. The other one is as we kind of mentioned a little bit earlier, is these are usually for what’s called accredited investors accredited investors have to meet certain net worth and income requirements so again this isn’t something that’s maybe widely available, you do have to meet some requirements,

And then finally, I would say too is they’re also a lot more complex and so their returns are driven by different strategies and so it’s really important that you understand exactly the type of strategy that the fund is going to be using because it is going to be very different than what we’ve normally have seen in the past and the kind of the traditional world of stocks and bonds. But, that also means there are some opportunities there as well.

Benefits and Drawbacks

So, Lee, what are some of the kind of the I guess I would say the benefits or the drawbacks to these types of investments?

Lee Shertzer:
Yes, it’s an that you do consider these you know so let’s first of all obviously talk about the benefits. The first is that you can reduce the risk of your portfolio by diversifying in different types of assets than traditional assets. Studies have been done on this over and over again and it shows that the more diversification you have you can actually reduce the risk. The other thing is that you can enhance the returns of your portfolio by adding different types of investment choices that might not be traditional and can really help in that area. Now, this does come with some drawbacks. Those drawbacks are, you know, they’re expensive. Okay, they’re more expensive than your traditional ETFs and that kind of thing as far as having a manager, but good managers cost money. So it’s not just expensive just because they’re expensive but they’re expensive because we’re buying higher quality. Also, the reason you need that higher quality manager is because these instruments are very complex. Okay, so we want to make sure that we have good managers working at really getting the best out of what they have to offer.

Final Points

So Mark what would be some final points on this introductory video that you would want to make sure we talk about?

Mark Brinser:
Yeah, I think as we look at this the biggest thing is there’s going to need to be some more research and due diligence done on these. And so what we’re hoping to do with this video today was just introduce the idea as Lee said. We’re going to be following up over the course of the next couple of weeks with some more maybe deep dives on specific types of alternative investments. We’re going to cover things like what is their strategy, what are some things to look for, and how does it fit into your overall portfolio, or if it even should fit into your overall portfolio? So there’s going to be some specifics coming out, so keep an eye out as you look for more of those over the next couple of weeks but overall. We hope that this was helpful as you just kind of get to learn a little bit more about these types of investments and like I said, stay tuned for more blog posts with some more details.

Exciting times.

Thank you.

Each individual’s or couple’s situation is unique with their own set of circumstances and goals. This information should not be considered investment advice, but rather for educational purposes only. Please speak with your financial advisor if you would like to discuss these options for your situation.

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