Alternative assets have been gaining traction in recent years due to their appeal to investors seeking diversification and non-traditional sources of return. In this blog post, we’ll explore the different types of alternative assets and their potential benefits, as well as how to start adding them to your existing portfolio.
“Alternative” is a term broadly used to describe assets outside the “norm”; that is, assets beyond traditional investments such as public equities (stocks), bonds, mutual funds, and cash. Alternative assets can be found in both the public and private markets, often in sectors considered to be inefficient. These include:
Alternative assets are prized by sophisticated investors because they behave differently than standard equity and bond investments. As such, they offer a unique set of benefits:
1. Broad diversificationOne of the primary tenets of modern investing, diversification involves spreading your investments across multiple classes so your exposure to any one type of asset is limited. Alternative assets can be an important part of this strategy, since investors have a broad range of strategies and sectors to choose from. Perhaps more importantly, alternatives as a whole typically show a low correlation to the performance of more traditional asset classes. While diversification doesn’t guarantee profit or totally guard a portfolio against losses, it’s designed to help reduce volatility over time.
2. Lower volatilityFor investors who want to build their portfolios on less volatile assets, alternatives are a smart move. As mentioned, alternative markets bear little to no correlation with mainstream securities markets.The value of many of these assets – art, wine, and real estate location, for instance – fluctuates minimally from day to day. Also, there are fewer buyers and sellers, and purchase sizes tend to be larger, with more complex transactions. This creates more friction, which gives the alternative market less liquidity in the short term.
3. Inflation hedge and equity appreciationTo successfully hedge against inflation, a portfolio is structured so its rate of return outpaces the inflation rate. Alternative assets tend to perform well in this area, particularly those that are real (tangible items with intrinsic value, like collectibles or precious metals). Although their prices in the short term can be hard to predict, real assets are generally expected to appreciate over time. In addition, you own real assets outright, making them an excellent means to both build equity and stay ahead of detrimental market forces.
4. Passive income Who doesn’t like the thought of a consistent, long-term stream of income that doesn’t require adding a second career? Alternative assets can be a great addition to an income investing portfolio, which, if done correctly, can generate enough cash flow to free up investors’ time to focus on other areas of their lives. Additionally, passive income can provide a cushion against salary cuts and job loss, as well as supplement a household on a fixed income.
5. Higher overall return potentialMany investors turn to alternative assets to improve the risk/return profile of a portfolio. While these assets often require a higher investment and involve higher risk, they can potentially yield returns greater than the S&P 500, depending on the investment type, horizon, and economic factors at play. Alternative asset classes have attracted sophisticated investors for one reason above all others: they offer a historically better return on investment than other options available to retail investors.
For decades, most alternative assets have been out of reach for the average person, accessible only to high-net-worth individuals or institutional investors. FranShares is working to change that in our favorite little corner of the world… the franchising sector.
We’re bringing passive franchise investing to more investors using a unique fractionalized approach that allows people from all walks of life to own part of pre-vetted managed franchises with great return potential. Plus, our deep industry knowledge paired with no fees means that we help investors get maximum returns safely – so no one loses their shirt. Our mission is to help investors reap the benefits of franchise investing with a business model that offers:
If you’re an investor looking to incorporate franchises into your portfolio, investing fractionally with FranShares offers high earning potential and diversification in a completely passive investment model.
To learn more about the FranShares opportunity, sign up for our waitlist on the FranShares home page.
Many would-be entrepreneurs dream about opening a franchise business, but they’re often deterred by the...
Alternative assets have been gaining traction in recent years due to their appeal to investors...
Transitioning into civilian employment after serving in the military can be a daunting prospect, even...
Join the waitlist before we launch and get lifetime priority on all FranShares portfolios.
Get educated on franchise investing before we go live with no commitment to invest
405 W Superior Street, #93Chicago, IL60654
(1) Portfolio IRR projections are calculated using all cash flows, including the initial investment of $25,000,000 of offering proceeds, annual earnings before interest, depreciation and amortization (“EBITDA”), less estimated corporate taxes, and the sale of the entire portfolio at the end of the fifth year at 5x EBITDA.
(2) Cash Yield projections are calculated as the arithmetic mean (average) of five years of annual cash flows (including EBITDA, less estimated corporate taxes) divided by the initial investment of $25,000,000 of offering proceeds.
(3) Equity IRR projections are calculated using the initial investment of $25,000,000 of offering proceeds and the sale of the entire portfolio at the end of the fifth year at 5x EBITDA.