Alternative Assets-Non-Traditional Assets
What are alternative assets-non-traditional assets:
When considering their investing choices, the vast majority of investors immediately think of stocks, bonds, mutual funds, exchange traded funds, and closed-end funds. These categories of investment assets are in fact the most well known and popular.
Fidelity Investment, Vanguard, Morgan Stanley, and certain bank trust departments are examples of the type of IRA custodians and administrators that allow only stocks, bonds, mutual funds, exchange traded funds and closed-end funds.
But, there is a smaller, but very important class of assets that appeal to many investors. These assets are generally not actively traded on exchanges; consequently they are less well known to the general investing public.
There is a separate group of IRA custodians and administrators who allow and encourage their clients to invest in a much broader range of asset classes and asset groups. They provide the capability for their clients to invest in assets that are listed on exchanges and assets that are not listed. The “not listed” category of investment assets are communally referred to as alternative assets or non-tradition assets.
Here is a list of the most common alternative and non-traditional assets:
- Flipping Real Estate
- Investment Real Estate-all types
- Commercial Property-all types
- Raw Land
- Private Developments
- REITS-all types
- Domestic Rental Property
- Foreign Rental Property
- Foreclosed Properties
- Tax Liens and Certificate
- Trust Deeds & Mortgages
- Equipment Leasing
- Private Notes
- Business Notes
- Limited Liability Companies (LLC)
- Gold & Silver
- Foreign Assets
- Foreign Real Estate
- Foreign Exchange
- Hedge Funds
- Venture Capital
- Lease Options and Sub Lease Options
As you can see, each one of these asset groups is an investment specialty-possibly in a “world of its own”. No individual investor can hope to be informed and knowledgeable about more than two or three of these groups. For an individual investor to invest in any single alternative asset group, that investor needs specific, current information and knowledge relating to that group.
Why do investors invest in non-traditional assets?
In many cases the investor has special knowledge and familiarity with a certain type of asset or industry. An example would be if the investor has been in a specific industry, or if the investor’s family has been in a specific industry, or if the investor has studied an industry as a hobby or professionally.
Another reason behind this investment strategy is to try for more consistent returns, and to protect against money getting locked up in inflation.
Diversification of investing capital is yet another reason. Alternative assets may provide a way to create monthly cash income. Different types of these assets provide different levels of income and different levels of risk. The cash monthly returns earned from these assets depends upon in the intrinsic quality of the asset, and the quality and quantity of the collateral security backing it up.
What general guidelines should be followed?
The fundamental considerations that will dictate these investing guidelines are basically the same “common sense” rules governing all financial decisions.
- Do I understand what I am doing in a general sense?
- Do I understand the nature and function of this asset?
- Do I know how to value this specific asset?
- Do I understand the risks I am assuming?
- Do I know the people or company that I am dealing with?
- How did I find this asset, or how did it find me?
- Do I know my legal rights?
- Do I know my legal liabilities?
- How much of my investment capital should I invest in any one asset?
- How long should my capital be tied-up?
- Do I have an exit strategy?
- Do I need independent professional help in order to “get this right”?
It is not enough to do your best; you must know what to do, and then do your best. W. Edwards Deming