Are Alternative Investments Right for You?

Michael FuglerNew products are no longer just for institutions and ultra high net- worth individuals. Their creators are putting alternatives in front of a broad range of accredited investors at an exponential rate.

The list is growing. There’s everything from commercial real estate including multifamily, office, retail, industrial, and hospitality- to mention a few. There is also self storage, data centers, medical offices, student housing, seniors housing, and single family housing.


Some say alternatives can act as a compliment, smoothing out the highs and lows of the market and reducing volatility.

We have seen a lot of publicity recently about non-traded REITS being acquired, going public, and shaking loose some potential illiquidity. As success is publicized, the rest of the market recognizes it and then begins to go after the sector.

Other say it’s the baby-boomer investors that increased interest because of the volatility they endured during the financial crisis and the growing closeness of their retirement. Advisors are warning against too much exposure to loss just before retirement.

Accredited angel investors are increasingly aware of alternatives, whether from news reports or conversations at cocktail parties with other investors.

A word to the wise, they are not suitable for everyone. Each offer can be very different, even if they are in the same sector. You have to move cautiously and do your homework. Two multifamily offerings can be as different as night and day on structure, payout, ROI, liquidity, exit in case of emergency, commitment of time for funds, and on and on.


Growing interest and hefty commissions are also leading more financial services firms to enter the alternative space.

The number of alternative investment funds monitored by the research firm Morningstar has grown from 239 in 2009 to 424 in 2013- a 77 percent in- crease. A growing wave of money has been pouring into those funds as well. Total invested assets in these funds have nearly tripled since 2009, rising from about $49 billion to $139 billion, according to data from Morningstar.

There is more education for you to learn about the key to potential success. Interested?

The pundits are saying that growth in equities and fixed income may be flat in 2014. So, where are people looking? Alternatives!

The first thing to realize is in alternatives there is less standardization and transparency, requiring more study and homework on your part.

Don’t forget it starts with the most important question, “What are your goals and how might any alternative investments meet your needs?”

Some alternatives can be highly illiquid, while others can seem very lacking in clarity and transparency. Don’t be fooled by glossy brochures with a hard to understand structure.

During extended periods of low interest rates, investors often seek products offering more attractive yields.

If you are an investor considering alternatives, be sure you fully understand:

• Illiquidity and valuation complexities

• Fees can add up- what are the fees, commissions?

• What are the Complexities and Risks

• Distributions may not be guaranteed

• Distributions may carry tax consequences

• Early redemption is often restrictive and may be expensive

• Operating expenses can eat up profits

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