Think outside the stocks: time to consider alternatives

To build robust, diversified portfolios in today's dynamic financial landscape, investors are increasingly looking beyond traditional assets. At Elkstone, we've seen growing interest in alternative investments, and for good reason.

But what exactly are alternative investments, and why should you consider them? Let's dive in.

Defining alternative investments

Alternative investments are financial assets that fall outside the conventional investment categories of stocks, bonds and cash.

These investments can include:

1. Real estate: From commercial properties to residential developments and real estate investment trusts (REITs).

2. Private equity: Investing in private companies not listed on public exchanges.

3. Hedge funds: Investment funds that use diverse strategies to generate returns.

4. Commodities: Physical goods like gold, oil or agricultural products.

5. Venture capital: Funding for early-stage, high-potential growth startups.

6. Infrastructure: Investments in physical assets like roads, bridges and energy projects.

Each of these categories offers unique characteristics and potential benefits, making them attractive additions to a well-rounded investment strategy.

The benefits of alternative investments

1. Enhanced portfolio diversification

One of the main advantages of alternative investments is their potential for true diversification.

While traditional assets often move in tandem during market volatility, many alternative investments have low correlation with stocks and bonds. This means they can potentially provide stability when other parts of your portfolio are underperforming.

2. Potential for higher returns

Some alternative investments, particularly in areas like private equity and venture capital, offer the potential for higher returns compared to traditional investments.

While this comes with increased risk, it can be an attractive proposition for investors looking to enhance their portfolio's overall performance.

3. Inflation hedge

Alternative investments, such as real estate and commodities, can serve as effective hedges against inflation. As the cost of living rises, these assets often appreciate, helping to preserve your purchasing power over time.

4. Access to unique opportunities

Alternative investments can provide access to markets and opportunities not available through traditional investing. For example, venture capital allows you to invest in innovative startups before they go public, potentially capturing significant growth.

5. Income generation

Some alternative investments, like certain real estate projects or infrastructure investments, can provide steady income streams. This can be particularly attractive in low-interest-rate environments where traditional fixed-income investments may offer minimal yields.

The risks of alternative investments

While the benefits are compelling, it's crucial to understand the risks associated with alternative investments.

1.  Illiquidity: Many alternative investments are illiquid, meaning they can't be easily sold or converted to cash.

2.  Complexity: These investments often involve more complex strategies and structures than traditional assets.

3.  Higher fees: Alternative investments typically come with higher fees compared to traditional investment options.

4.  Less transparency: Some alternatives may offer less transparency than publicly traded securities.

5.  Regulatory risk: Changes in regulations can significantly impact certain alternative investments

Comparing alternatives with traditional investments

While stocks and bonds form the foundation of most investment portfolios, alternative investments offer unique characteristics that can complement these traditional assets.

• Return profile: Alternatives often aim for absolute returns, regardless of market conditions, while traditional investments most typically seek to outperform a specific benchmark.

• Liquidity: Traditional investments are generally more liquid than alternatives, although it’s not always the case.

• Accessibility: Stocks and bonds are more easily accessible to the average investor, while many alternative investments have higher barriers to entry.

• Risk-return trade-off: Alternatives can offer potentially higher returns but often come with higher risk compared to traditional investments.

Why choose Elkstone for alternative investments?

At Elkstone, we bring a wealth of experience and expertise to the world of alternative investments:

1. Deep market knowledge: Our team has a deep understanding of both local Irish markets and global investment landscapes.

2. Tailored approach: Enabling access to private markets, co-investing alongside institutional investors.

3. Access to exclusive opportunities: Our network and reputation give us access to high-quality alternative investment opportunities not available to the public.

4. Holistic portfolio management: We consider how alternative investments fit into your overall investment strategy, ensuring a well-balanced portfolio.

Are alternatives right for you?

Alternative investments offer a powerful tool for portfolio enhancement, providing diversification, potential for higher returns and access to unique opportunities. They also come with their own set of risks and complexities, however so it’s important to conduct thorough research and due diligence in advance of any investment.

Elkstone is Ireland’s leading alternative investments firm specialising in private markets.

Want to dive deeper into the world of alternative investments? Contact our investment team today to get started on your investment journey.

Warning: Past performance is not a reliable guide to future performance.

Warning: Benefits may be affected by changes in currency exchange rates.

Warning: The value of your investment may go down as well as up.

Warning: If you invest in these funds you may lose some or all of the money you invest.

Elkstone Private Advisors Limited (trading as Elkstone, Elkstone Wealth, Elkstone Private and Elkstone Ventures) is regulated by the Central Bank of Ireland.

Warning: This is a marketing communication. This document is not a contractually binding document and has been prepared for information purposes only. It is not intended as and does not constitute a personal recommendation. Please do not base any final investment decision on this.