Best Investment Ever? Some Say Alternative Assets Carry the Day

Alternative investments are crucial for portfolio diversification — and in … investments into early stage companies, real estate and digital currencies.
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Alternative investments are crucial for portfolio diversification — and in some cases, they may rank among the best investments you’ll ever make.

Savvy institutional investors and high net worth individuals are shifting their exposure away from stocks and into alternatives such as real estate, private equity and cryptocurrencies to tap into new and diversified investment strategies. Alternatives offer both institutional and retail investors the potential for higher returns and also provide exposure to assets that are uncorrelated to public markets, which can shelter your portfolio during times of market volatility.

Using Alternatives To Build Wealth

At my company, a retirement portfolio investment tool, I’ve seen scores of investors tap into their tax-advantaged savings to make investments in a wide range of alternative asset classes. While real estate remains one of the most common asset classes for these investors, many are using their retirement wealth to invest in cryptocurrencies, peer-to-peer loans, direct business equity and many more.

Alternatives can not only enhance portfolio diversification but also operate as a means to build substantial wealth. Four self-made millionaires recently described the best investments they ever made, and none highlighted traditional stock market investments.

One self-made millionaire received equity in AOL when it was just a fledgling tech startup, while another was an early stage investor in luxury shoe brand Jimmie Choo. One flipped commercial real estate, and the last capitalized on a small stake in Microsoft’s growth in the 1990s as well as California’s residential real estate bubble prior to the Great Recession. The common theme here is that all of these nontraditional investments ranks as the best investments these four ever made. Their stories aren’t about buying shares of Coca-Cola or General Electric in the 1960s, but rather how they amassed personal wealth through key alternative investments.

Although investing in alternatives such as tech startups can be a bit riskier than traditional stock market investments, the upside can be life-changing if you do hit that home run. Investing in more tangible assets such as real estate can provide more safety, and countless retail investors have leveraged initial investments in real estate to build significant portfolios of real assets that provide substantial wealth and monthly income.

Retirement investors can tap into wealth they’ve already accumulated to construct an alternative and private portfolio as part of their overall asset base. This diversified strategy means investors don’t have to bet on just one company and hope they hit a home run; they can bet across multiple asset classes such as direct equity investments into early stage companies, real estate and digital currencies.

Diversification into alternative assets could be essential to crafting a well-balanced 21st century portfolio that can withstand periods of economic volatility and generate substantial tax-deferred returns. The upside potential can pay dividends that investors typically won’t see with their standard market investments.

Best Practices For Investing In Alternative Assets

Unlike traditional investing in most publicly offered assets, where conservative investors can follow the traditional 80/20 or 60/40 rule and allocate the bulk of their portfolio to less volatile assets such as low-yield bonds and other fixed-income products and a more modest percent into riskier high-growth stocks, there’s no real road map for investing in alternative assets. That’s mostly because alternatives encompass such a wide range of investment options, from cryptocurrencies to oil and gas leases to real estate.

Two primary drivers for alternative investment allocation are the individual investor’s appetite for risk and his or her age. Older investors nearing retirement age aren’t as likely to allocate the bulk of their portfolio into private equity or other assets that have the potential to go bust. Younger investors, on the other hand, may be more comfortable allocating a significant portion of their investment funds into cryptocurrencies, private business equity, peer-to-peer loans or crowdfunding opportunities because they’re better positioned to weather longer hold times and cyclical downturns across their investments.

Alternative investors also would be wise to hedge their risk by spreading investments across a wide range of asset classes rather than single-stream investing, which can create a large amount of asset-specific risk. Diversification creates a buffer against cyclical swings in real estate, regional economies and downturns in public markets. Portfolios containing 15 to 20 assets can offer a greatly reduced risk profile, as well as increased opportunity for high-yield growth from several successful investments.

Investors should perform extensive due diligence on prospective investments to determine which alternatives are best for them since risk profiles vary greatly depending on the nature of the asset class. Primary concerns for private equity investments for startups, for example, include ensuring valuations are correct and stringent cash management principles are in place, the business has the potential to scale and executive management has the ability to execute. Some investors engage third-party risk aggregators to collect, process and analyze this vital information.

There’s no single approach that’s superior when it comes to alternative investing. Prudent investors often blend a range of traditional investments with a mixed portfolio of alternatives to improve expected returns and spread risk. Alternative investors also should consider their and personal expertise, familiarity and ability to execute within a given asset class. The alternative space continues to expand, and investment strategies should remain fluid in order to adapt to rapid change and new opportunities.

The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.

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How Does Investing In Haydale Graphene Industries plc (LON:HAYD) Impact The Volatility Of Your …

Anyone researching Haydale Graphene Industries plc (LON:HAYD) might want to consider the historical volatility of the share price. Modern finance …

Anyone researching Haydale Graphene Industries plc (LON:HAYD) might want to consider the historical volatility of the share price. Modern finance theory considers volatility to be a measure of risk, and there are two main types of price volatility. The first type is company specific volatility. Investors use diversification across uncorrelated stocks to reduce this kind of price volatility across the portfolio. The other type, which cannot be diversified away, is the volatility of the entire market. Every stock in the market is exposed to this volatility, which is linked to the fact that stocks prices are correlated in an efficient market.

Some stocks see their prices move in concert with the market. Others tend towards stronger, gentler or unrelated price movements. Beta can be a useful tool to understand how much a stock is influenced by market risk (volatility). However, Warren Buffett said ‘volatility is far from synonymous with risk’ in his 2014 letter to investors. So, while useful, beta is not the only metric to consider. To use beta as an investor, you must first understand that the overall market has a beta of one. Any stock with a beta of greater than one is considered more volatile than the market, while those with a beta below one are either less volatile or poorly correlated with the market.

See our latest analysis for Haydale Graphene Industries

What does HAYD’s beta value mean to investors?

Given that it has a beta of 0.86, we can surmise that the Haydale Graphene Industries share price has not been strongly impacted by broader market volatility (over the last 5 years). This means that — if history is a guide — buying the stock would reduce the impact of overall market volatility in many portfolios (depending on the beta of the portfolio, of course). Beta is worth considering, but it’s also important to consider whether Haydale Graphene Industries is growing earnings and revenue. You can take a look for yourself, below.

AIM:HAYD Income Statement, August 16th 2019
AIM:HAYD Income Statement, August 16th 2019

Could HAYD’s size cause it to be more volatile?

Haydale Graphene Industries is a noticeably small company, with a market capitalisation of UK£5.6m. Most companies this size are not always actively traded. It is not unusual for very small companies to have a low beta value, especially if only low volumes of shares are traded. Even when they are traded more actively, the share price is often more susceptible to company specific developments than overall market volatility.

What this means for you:

The Haydale Graphene Industries doesn’t usually show much sensitivity to the broader market. This could be for a variety of reasons. Typically, smaller companies have a low beta if their share price tends to move a lot due to company specific developments. Alternatively, an strong dividend payer might move less than the market because investors are valuing it for its income stream. This article aims to educate investors about beta values, but it’s well worth looking at important company-specific fundamentals such as Haydale Graphene Industries’s financial health and performance track record. I highly recommend you dive deeper by considering the following:

  1. Financial Health: Are HAYD’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
  2. Past Track Record: Has HAYD been consistently performing well irrespective of the ups and downs in the market? Go into more detail in the past performance analysis and take a look at the free visual representations of HAYD’s historicals for more clarity.
  3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.

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Juniper Networks (JNPR): What are the Medium Range Signals Telling Us?

Interested investors might be taking a look at the medium range signals for Juniper Networks (JNPR). The reading from the 40-day commodity channel …

Interested investors might be taking a look at the medium range signals for Juniper Networks (JNPR). The reading from the 40-day commodity channel index is currently Sell. The CCI indicator is mainly used to identify oversold and overbought levels. The signal direction is Weakening.

Many investors are concerned with the proper portfolio diversification. Stock portfolio diversification entails spreading the investment dollars around to help minimize risk. When investors are creating a portfolio, they may be looking to add a combination of growth, value, income, dividend, and foreign stocks. They may also be spreading out stock picks among various industries. Keeping a mix of stocks that perform differently under certain market conditions can help keep the portfolio afloat when the environment shifts. Holding a few large positions in a small number stocks may lead to trouble if the market turns sour and stock prices decline drastically.

Shifting to the 50-day moving average vs price signal, the reading is measured at Sell for Juniper Networks (JNPR). This indicator is used to watch price changes. After a recent look, the signal strength is Average, and the signal direction is Weakening. Investors may also be interested in following other technical signals. Checking on the 50-day parabolic time/price signal, we can see the signal is presently Sell. The parabolic strength is Strong, and the direction is Weakening.

Many investors will often want to widen the focus when studying equities. Let us now take a look at some longer term technical indicators. Juniper Networks (JNPR) currently has a 60-day commodity channel index of Sell. The CCI indicator is typically used to scope out overbought and oversold levels. The direction is presently Weakest.

Changing lanes, the 100-day moving average verse price signal is Sell for Juniper Networks (JNPR). The 100-day MA verse price strength is Average, and the direction of the signal is Weakening.

Many investors are concerned with the proper portfolio diversification. Stock portfolio diversification entails spreading the investment dollars around to help minimize risk. When investors are creating a portfolio, they may be looking to add a combination of growth, value, income, dividend, and foreign stocks. They may also be spreading out stock picks among various industries. Keeping a mix of stocks that perform differently under certain market conditions can help keep the portfolio afloat when the environment shifts. Holding a few large positions in a small number stocks may lead to trouble if the market turns sour and stock prices decline drastically.

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Research: Bitcoin Provides Great Diversification Benefits For Multi-Asset Portfolios

MakerDAO, for instance, is a decentralized debt system running on the Ethereum blockchain. It allows people to lock their ETH in a smart contract as …

New research by the world’s top crypto exchange, Binance, indicates that portfolios that include Bitcoin exhibited overall better risk-return profiles than traditional multi-asset class portfolios.

Binance Research Delves Into Portfolios

The research division of Malta based Binance has been analyzing different portfolio structures to ascertain the differences in risk-return profiles.

“#Binance Research analysis shows that including $BTC in traditional multi-asset class portfolios provides overall better risk-return profiles.”

Portfolio Management Series #1 – Diversification Benefits with #Bitcoin#Binance Research analysis shows that including $BTC in traditional multi-asset class portfolios provides overall better risk-return profiles.

How much of your portfolio is Bitcoin?https://t.co/s8MFE42sfl

— Binance Research (@BinanceResearch) July 25, 2019

The study concluded that for a decade, Bitcoin has been an extremely volatiles asset exhibiting large drawdowns. Conversely it has also had some of the largest price rallies in recorded history. Additionally there has been no significant correlation between BTC and other traditional asset classes such as commodities, equities, or fixed-income products.

Bitcoin has a number of advantages from a trading perspective as it is one of the most liquid assets on the planet. With consistently low spreads and high volumes trading venues are consistently being arbitraged it added. The report added:

“Binance Research simulated different Bitcoin allocation techniques in existing diversified multi-asset portfolios. All simulated portfolios which included Bitcoin exhibited overall better risk-return profiles than traditional multi-asset class portfolios. These results show that Bitcoin provides active diversification benefits for all investors worldwide, following multi-asset strategies.”

New institutionally focused investment products and crypto custody solutions have made Bitcoin an essential asset to be included in any portfolio for its diversification properties.

It is no surprise that BTC was declared highly volatile with annual returns in four figures for three of its ten year existence. Only in 2014 and 2018 did Bitcoin show a loss year on year. Because it is a nascent technology and asset with a null starting value it has experienced wild price fluctuations.

The report added that volatility is likely to decrease as the industry matures and new institutional products such as Fidelity Digital, ETFs, and mutual funds are launched. Expanding on correlation, the research compared BTC returns with other traditional assets such as the S&P 500, FTSE 100, oil, gold and silver. It concluded that Bitcoin would be a very good choice for those seeking diversification since it remains uncorrelated with all other non-crypto financial instruments and asset classes.

The research was Binance’s first report in a series on portfolio management. Irrespective of preferred asset class, BTC was found to provide diversification benefits leading to an improved risk-return profile for investors. It concluded that despite the simplicity of the strategies described, they all provided overall positive results from a risk/return perspective.

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