What Are Alternative Investments? Advice From Intentional Wealth Advisors, LLC

After the financial crash of 2008, many individual investors soured on the stock market and, after all these years, are still not jumping back in. But investors are also uninspired by the bond market, because interest rates are so low. “We have record amounts of cash sitting on the sidelines,” says Brian Ursu, president of Intentional Wealth Advisors, LLC in Traverse City. “But if you just put your money in the bank you are getting less than 0.5 percent interest, and that doesn’t seem like a workable solution either.”

In response, some people are looking to investments that fall under the broad term “alternative investments,” Ursu explains.

One of the most common types of alternative investments is real estate investment trusts (REITs), in which investors combine money in a large pool and hire a manager to purchase large commercial real estate, like office buildings, shopping centers and apartment complexes. Once the real estate is purchased, the fund generates consistent rental income. “Typically after about seven years, the fund would sell the real estate and move on to the next one,” says Ursu. Adding a measure of stability to the fund, some REITs specialize in properties that are essential to the operations of a specific business, for example, purchasing the headquarters of The New York Times and leasing it back to the company.

Another type of alternative investment is direct loan participation. Imagine a medium-sized business that needs to borrow $50 million. If the company isn’t public, it can’t issue stock, and maybe the company leaders don’t want to go to the bank. “They can join in with other companies in a loan package that people can invest in,” Ursu says. The firm selling the investment would be responsible for doing appropriate credit checks, due diligence, and so forth.

While these types of investments have gained a measure of credibility—about half of large endowment funds are comprised of some type of alternative investment—investors still need to be extremely cautious when heading into this investment realm, Ursu explains. “It can be risky. These types of investments are illiquid and not suitable for everyone. There are a lot of financial advisors who dabble in this area and not all alternative investments are created equal.” Work with somebody who is reputable, has a proven track record and does due diligence of his or her own.

Find more financial advice in MyNorth’s annual publication of Estate & Financial Services—free! Click the cover to read.


More Financial Services

Article Comments