Alternatives Offer More Stability And Less Uncertainty

For investors who are tired of the volatility that comes with investing in the stock market, there are alternatives. Since the financial crisis in 2008-2009 a different class of investment has emerged; one that offers more stability and less uncertainty. They are commonly known as alternative investments.

To clarify, alternative investments are any investment outside the traditional opportunities, like stocks, bonds, and high-interest savings accounts. Popular alternatives include private equity, investing in shipping containers and other hard assets, to name a few.

Private Equity

Using private equity, investors and/or managed investment funds make investments directly into private companies. In some instances, the private equity is used to conduct buyouts of public companies, with the intention of making them private. Funds raised through private equity investment are most often used to develop new products/technologies, expand working capital, make corporate acquisitions, or strengthen a private company’s balance sheet.

Shipping Containers

Popular because it is an income-generating investment, shipping container investing is an investment in a tangible asset. With the help of a container leasing company, investors can own a fleet of shipping containers that earn a monthly income for them. The shipping containers purchased by investors are deployed by the leasing company to industry leaders who operate on the busy trade routes around the world.

Hard Assets

Hard asset investments, such as precious metals, real estate, and collectibles, have demonstrated their ability to preserve an investor’s capital. As well, hard asset investments have shown that they can make gains in the face of economic uncertainty and rising inflation. Fine wine and gold bars must be securely stored, farmland must be mowed, and classic cars must be maintained. If this is something an investor cannot do themselves, it may become an additional, unexpected expense.

Traditional investments have been relied too heavily upon by investors to produce solid returns week after week. Over the last decade many of the “go-to” investments have been performing very poorly. As long as traditional investments are subject to political and economical influence, investors would be wise to move toward alternatives to protect their wealth and improve the performance of their portfolio.

Why Do Investors Choose Hard Assets Over Stock or Bonds?

With so much volatility and uncertainty all over the world, worried investors – like me – are reassessing their portfolios. The impact that political decisions can have on a traditional investment – like stocks and bonds – is definitely cause for worry and a reason to seek safety in hard assets. Look at the Brexit vote in the United Kingdom in mid-2016.

The London stock market dropped significantly in the wake of the Brexit vote, plunging by nearly 9%. A report from Morningstar showed that worries over the Brexit referendum results prompted investors to withdraw £5.7 billion from UK equity funds in early July 2016. Also, against the U.S. dollar, the pound quickly dropped to its lowest level in more than 30 years.

Other European markets also dropped following the surprise result, with many posting larger losses than the London markets. Germany’s DAX index fell by nearly 7%, while the French CAC dropped by 8%. Stocks in Ireland closed with a loss of nearly 8%.

The flight to safety also caused bond yields to plunge to record lows across the globe, making it even harder for investors to get decent income. The government bond rally pushed yields on over $10 trillion in global bonds below zero, most notably the 10-year German bond yield – known as the bund – which spent three sessions in negative territory; for the first time in history. In Switzerland, the yield on the country’s 30 year bond turned negative for the first time ever.

When Brexit prevailed, there was volatility and a flight to gold as well. This resulted in a sharp rise in the demand for the precious metal, which drove gold to its highest price in more than two years. At one point, in the immediate aftermath of the Brexit vote, it surpassed the $1,358.20 milestone achieved on June 24, 2016. After all, hoarding gold is a centuries-old reaction in times of crisis, and the aftermath of the EU referendum vote was no different.

gold rallied 2016

For anyone investing for retirement, exposure to the stock or bond market would have meant significant losses after Brexit. The addition of alternative investments – like gold – to a portfolio would have gone the opposite way of stock and bond returns. This would have delivered profits in a time of political turmoil and is therefore, one the most compelling reason why investors are choosing hard assets over traditional investments.

Are Alternative Investments A Popular Choice? If Yes, Why?

The alternative investment industry has continued to demonstrate strong growth throughout 2015 and the first half of 2016. In a recent survey by Bank of New York Mellon Corp., investors showed a greater interest in investing in alternatives. In fact, more than one-third of investors surveyed said they would increase allocations to alternative investments in 2017.

The increase in interest in alternative investments is driven by investor demand. People are beginning to look at opportunities across the globe to diversify their portfolios. They are looking to include a wider range of asset classes that will generate strong returns, reduce volatility, hedge against inflation, and access reliable income sources.

For decades, traditional investing options delivered on their promise of generating consistent returns on investment. But now, the landscape has changed for investors. The Great Recession that began in 2008 introduced an environment of extended low interest rates that has nearly wiped out expected returns on bonds and cash investments. In doing so, it has driven home the need for greater diversification.

The beauty of diversification is it’s about as close as you can get to a free lunch in investing. – Barry Ritholtz

Increasingly, affluent, high-net-worth investors across the globe are using alternative investments in their portfolios over and above stocks, bonds, and cash investments. Alternative products like investing in shipping containers, allow investors to tailor the way they extract return and the shape of risk they are comfortable with. Not only can this be helpful from a risk management perspective, it is a way for smart investors to create a volatility exposure that protects other parts of their portfolio.

One key advantage of alternative assets is that they have different, and asymmetric, risk/return profiles. This combination creates very powerful diversification. Because of this positive behavior, alternative asset classes such as private equity, commodities and hard assets, infrastructure investments, and the like, are gaining popularity rapidly. Estimates see the global alternative investment pool of assets under management to be in excess of US$10 trillion and still rising.

Do Not Expect Significant Rates Of Return From Bonds In 2016

With interest rates still very low and likely to rise, investors should not expect a significant rate of return from bond holdings in 2016.

Now that the U.S. Federal Reserve is raising rates, bond investors are being confronted by their greatest fear. Historically speaking, the value of bonds will drop when rates rise, simply because their yields are less attractive than those of newly issued bonds; and even hard assets for that matter. In fact, if rates do rise even modestly, it WILL hurt bond prices and negatively affect the total return for bond investors.

barclays says curb expectations

“Curb your expectations.” – Barclays Investment Bank

Analysts believe that the Federal Reserve’s policy has not just been keeping borrowing costs down in the bond market, it has also been an important contributor to high stock market prices, as well as the surprisingly speedy recovery in the U.S. housing market. The truth be told, too much of a rise in rates will create problems that extend beyond bonds. The impact of higher rates could hurt the economy, which would in turn place pressure on rates.

“If it becomes clear that the business cycle is not facing an imminent recession in developed markets, we think spreads should rally modestly, helped by accommodative central banks outside the United States”. – Barclays Strategists Annual Outlook [2016]

Another point of concern for many analysts and savvy investors is that the central banks in Europe, Japan and elsewhere, are actively pumping stimulus into their economies to drive growth; the Federal Reserve is moving in the opposite direction. Let’s not discount that long-term rates depend not just on where the U.S. Federal Reserve is heading, but also on inflation.

Economists have forecast that once the Federal Reserve begins its cycle of rate hikes, expecting anywhere from two to four rate hikes based on inflation expectations and financial conditions, the bond bubble will burst.

Considering the risk that both Federal Reserve rate hikes and inflation pose, in conjunction with the recent market volatility that is adversely affecting the daily price of bond holdings, it is recommended that investors maintain a very cautious approach to investing in bonds; and consider introducing alternative investments to their portfolio to limit their exposure to the current financial and economic factors.

Three Things China Can Do To Mend Its Markets And Economy

Although the drop in China’s stock markets began on June 5, 2015 and ran through August 2015, there were new market challenges that emerged in January of 2016. These repeated drops in China’s markets has caused Chinese and international investors to re-think their approach to investing in traditional assets, and seek-out other, less-risky options. For many investment-seekers, alternative investments in hard-assets like investing in shipping containers have emerged as the ideal investment solution.

Since the sharp decline began, top markets such as Shanghai Stock Exchange have tumbled; at one point losing a third of their value in less than a month. This means that investors in China and around the world have lost millions and millions of dollars.

Regrettably, the stock market instability has made its way outside China and into other foreign markets. The Nikkei index in Japan experienced a 4.6% slip in their normal trading value, and the European market dropped by 5%; even the Dow, and the Germany’s DAX have experienced losses. Although the markets have since regained their stability, and some have even gained ground, returns on stock market investments have decreased and the associated risks have increased.

From my perspective the Chinese government could use these three different policies and methods to solve the issues in their market and mend their economy.

Firstly, the government could buy stocks. One way to accomplish this is to lend money to asset managers like a brokerage company so that they can do a buyback of stocks. Another way to be successful is for the Chinese government should buy small and average performing stocks.

Secondly, the government could use new stimulus plans to allocate huge amounts of investment into different areas of the economy that encourage growth and act as pillars of the economy. Making investments in shipping ports and infrastructure have demonstrated they can drive economic growth.

Thirdly, China should aim at increasing the spending power of its citizens.

The steady drop in the Chinese stock market has created financial uncertainty throughout the world, and in doing so, has shed the light on the increased risk stock market investments pose to investors’ wealth. That said, “money” is one thing, but some of the investors have lost more than personal wealth in the stock market; they have lost interest too. Many of the investors who are discouraged by the performance of traditional assets (like stocks) are looking to rebuild their wealth by including more alternative assets in their portfolio.

A Savvy Investors’ Guide to Alternative Investments in 2016

In the eyes of many institutional investors and high-net-worth individuals, investing in alternatives continued to emerge as an attractive investing option in 2015. This positive trend is expected to continue throughout 2016 and 2017, as the uncertain – possibly overpriced – public markets drive more and more investors to seek-out profitable returns in other markets.

The fact of the matter is that years of increasing volatility in public equities, and the shrinking yield on bonds, has caused battered investors to seriously consider introducing alternative assets to their portfolio, particularly as a means of diversifying their investment holdings. In 2015, wealthy investors were looking for real protection from market swings, and alternatives have stepped-up to meet their needs.

Among all the alternative investment opportunities available to investors this coming year, there are three investments that – based on historical performance, economic forecasts, and reviews – will deliver great performances for investors in 2016: Real Estate, Precious Metals, and Shipping Container investments.

Real Estate 2016

The definition of what constitutes “investing in real estate” is expected to continue to expand in 2016. As investors seek to balance capital conservation with capital growth, it will become more difficult to classify investment-seekers as core, value-added, or opportunistic. Instead, 2016 will see the investment community searching out a wider spectrum of real estate offerings in both established and emerging markets.

The ever-evolving forces of globalization, technology and urbanization are constantly influencing one another. We can expect that this will require real estate investments to be evermore dynamic as they adapt to a networked world.

In 2016, “mixed use” investments that combine condominiums, offices, retail space are forecast to be strong in urban markets. Much of this will be driven by the growth of e-commerce and shifting consumer behaviors, that will encourage companies to make constant improvements to their supply chain. Because of this, the demand for industrial buildings and land that is suited for distribution centers will rise across the globe.

real estate looks doggone good in 2016

The next 24 months look doggone good for real estate. – Lending Officer, Major Financial Institution

Aside from new real estate buildings and developments, analysts expect significant investment into the redevelopment of older buildings. This will come about as companies begin to recognize the need for facility upgrades to accommodate the growing demands of tenants. After all, in business – like biology – adaptation is the key to survival and maintaining a competitive advantage.

Precious Metals 2016

Analysts from across the globe are forecasting that gold prices will rebound in 2016, climbing to $1250 an ounce. As well, both silver and platinum are expected to see higher prices too, rising to $17.50 and $1100 respectively and giving investors compelling reasons to invest in precious metals.

If you’ve never owned gold stocks, this probably isn’t a bad time to add them. – William Bernstein, Author of “If You Can: How Millennials Can Get Rich Slowly.”

add gold investments 2016

The strong international demand for Silver, coupled with a drop in production in 2015 – 23 percent in Canada, 5 percent in the United States, and 4 percent each in Australia, Chile and Mexico, is very likely to have a major impact on the precious metal’s value in 2016. After all, basic economics suggest that when demand increases and the supply declines, prices will rise sharply.

Driving this strong demand for Silver is a new and major purchaser: India. To give an indication of the level of their demand, in August 2015 Indian investors imported $363 million worth of silver, 48% more than they did a year earlier in 2014. In September 2015, more than $433 million worth of silver was imported into the country, demonstrating India’s continued demand.

Shipping Containers 2016

With the Global Financial Crisis nearly a decade in the past, countries all over the world have persevered and – with the help of the container shipping industry – have delivered a strong economic recovery. Their growth has been fueled by making strategic investments in areas that facilitate global trade, like ports, terminals, and infrastructure, and also encourage domestic prosperity.

According to industry research, more than 90 percent of the world’s consumer cargo is delivered by the container shipping industry. Thus, investors can expect that any increase in a country’s GDP is going to mean an increase in the number of shipping containers needed to facilitate the demand. Regardless of whether they are imported or exported containers, the international container fleet must be prepared to facilitate economic growth.

Even in countries like the United States, where the economic recovery has been slow, government officials are seeing growth rates of close to three percent; and this is translating into rising demands at shipping ports and container terminals across the nation.

2016 container growth relative to gdp

[Over the longer term] our expectation is that container growth is going to grow relatively in line with GDP. – Moses Kopmar, Moody’s Analyst and Author of Moody’s Investors Service Report

In prospering nations like China – which will see growth rates of approximately seven percent – the need for shipping containers to meet the Asian giant’s ever-rising import and export demands can be expected to increase steadily year after year, as well. This constant economic growth must be funded by continuous investment into shipping containers, infrastructure, and port-side equipment.

Alternative Investment Outlook For 2016

Growing increasingly appealing since 2012, the allocation of alternative investments in portfolios is expected to continue to increase year-over-year. In fact, PriceWaterhouseCoopers has forecast that investor adoption of alternatives will grow approximately 10 percent per year, ultimately reaching a value of $13 trillion by 2020.

The most popular reason for this steady investor migration from traditional investments, like stocks and bonds, is that alternative investments have consistently proven that they can satisfy an investors need for diversification. Given that they tend to exhibit a much lower correlation and behave differently than traditional investments, thereby limiting the impact the sudden drop in value of one investment would have on the whole portfolio, alternatives investments – like real estate, shipping containers, gemstones, and precious metals – are commonly recommended to diversify a portfolio.

Investors need to be aware that historically, alternative investments have offered much better risk-adjusted returns than traditional asset classes. In doing so, they have consistently outperformed traditional investments, while experiencing lower volatility. The international investment community can expect that this trend of positive alternative investment returns will continue throughout 2016.

Alternatives Help Investors Regain Control of Financial Future

Generally speaking, an alternative investment is any investment opportunity that has not established a reputation for itself as a long-standing, traditional investment. Examples of well-established or “traditional” options include stocks, bonds, and, although investing in precious metals is quite new, gold is a long-standing investment too.

The trouble with many of the investments that occupy portfolios right now is that their performance is unduly influenced by the economic and political environment, which for the most part is dictated by bias (often self-serving) policy makers.

Economic progress, in capitalist society, means turmoil. – Joseph A. Schumpeter

economic progress turmoil

During the onset of the global financial crisis in 2008, it was the traditional investments identified above (stocks, bonds, etc.) that experienced the greatest drop in value. On the other hand, many of the leading alternative investments were unaffected by the poor performance of traditional assets, or saw limited losses followed much quicker recovery than their more established counterparts. That said, the investment community has taken notice of this impressive track record, and many have adjusted their portfolios to include more non-traditional options.

Albeit a majority of investing dollars remains in stocks, bonds, commodities, etc., investors feel the need to regain some control over the direction and performance of their financial future. In doing so, investors have discovered that placing financial resources into hard assets like investing in gemstones, precious metals, and/or real estate investments, provides a degree of protection from the effects of market volatility, political turmoil and global economic woes; three strong influences on the performance of traditional investments.

Too oft is transient pleasure the source of long woes. – Christoph Martin Wieland

pleasure and woes

Despite bouts of prosperity, Wall Street and other stock markets have repeatedly disappointed the investment community. And, with the constant threat of inflation, bonds do not appear to offer a better option for the world’s cautious investors. The main driving force behind this is caution is economic uncertainty. This combined with the fact that investors know that banks and governments represent their own interests, means investing options that operate outside their sphere of influence are a much more favorable option.

With the world’s traditional investments still struggling to recover and perform, alternative investment brokers are demonstrating that their offerings are more appealing, especially given that they offer lower risk and have demonstrated that they can (and will continue to) outperform the established list of more traditional investments. That said, these are the opportunities that will allow investors to take back control of their investment portfolios, and release their financial future from the grips of greedy institutional investment firms.

New Alternatives Offer New Investing Challenges For Investors

By most any definition, alternative investments are simply anything different from traditional offerings. This includes non-traditional strategies like real estate investments, commodities, currencies and collectibles.

When we look at the investment industry, we’ve generally had three asset classes to work with — equities, real estate and fixed income — and all three have won out over the past 35 years because we’ve had a declining interest rate environment. – Som Seif, President of Purpose Investments Inc.

In past years, the market’s most attractive alternative investments have been repeatedly applauded for their diversification benefits and steady returns. Adding to their increasing appeal, many investors feel that they are a much more secure investment, given that they are uncorrelated to stocks and bonds.

Although it sounds like a wonderful investing strategy for most anyone, in the past many of these opportunities have been a secret investment that held a big price tag and, more often than not; were limited to institutional and/or accredited, high-net-worth investors. Thankfully this is changing.

Nowadays, savvy, confident investors are enjoying access to a new wave of more affordable alternative investments. This has been instrumental in encouraging investment-seekers to introduce alternatives to their portfolio, and to distance themselves from the volatility of the stock, bond and currency markets.

In recent months I for one have been approached by several investment brokers, whose entire list of offerings is comprised of nothing but alternative investments. Their list of non-traditional opportunities range from commercial real estate and shipping container investments, to precious metal and gemstone investing. None of which I am particularly knowledgeable about. In fact, therein lies much of my apprehension about alternatives.

All things considered, if investors hope to discover where alternatives fit in their portfolio, they must either conduct their own in-depth research or rely upon the information provided to them by their brokers and/or advisers. In either case, I recommend that investment-seekers do as I have done, and educate themselves on:

  1. the investment provider,
  2. past and present market performance, and
  3. credible forecasts for the future.

Given that these new alternatives have presented new challenges for investors, the only way to profit from these new, highly profitable opportunities is to educate yourself, and make informed decisions based on established facts and figures.

For example, although the global shipping industry appears to be facing its share of challenges for the next couple of years, much of the world’s real estate market is doing well and gemstones have shown to retain (and steadily increase) their value. I’m still not sold on precious metals either. That will require further study.

All in all, my confidence in alternative investments is high. I see a lot of potential for great, low-risk returns in the coming years, and I have adopted a non-traditional investing strategy to reflect that.

A Way to Exit The Stock Market And Earn up to 12 Per Cent

Even those who think the market offers long-term promise are less enthusiastic about its immediate future.

If pushed to say whether I think we’re on the cusp of a real correction, over 5 to 10 per cent, I’d say that I’m not sure; but the market doesn’t feel great. – Jenny Van Leeuwen Harrington of Gilman Hill Asset Management (Westport, Connecticut, U.S.A).

That said though, most financial advisors have expressed caution about trying and exit the stock market given that it is high now, and then reinvest later when it’s low. But, if history is any indication, many nervous retail investors will not heed their strong advice and instead will cash-in while the market is high and jump out. If you are one of those investors, here are some options to consider, if you’re looking places other than the stock market to invest your money:

Since 2005, a growing number of investors have been investing in alternatives, such as private equity like peer-to-peer lending, real estate investments, and investing in commodities. Over the past decade, many of these alternative investment offerings have established long histories of great returns and stability.

Seek-out the protection of market-neutral products. These investments are designed to earn a strong return whether the market rises or falls. This is one of the advantages of investing in shipping containers.

“Peer-to-peer” lending websites like Prosper.com and LendingClub.com match up investors with individual borrowers seeking lower interest rates. Peer lending industry experts say investors are getting returns that range from 5 to 12 per cent, and the returns don’t move with the stock market.

Be well aware though that, despite their appeal to savvy, confident investors, the experts recommend that alternative investment holdings should comprise no more than 7 per cent of your total investment portfolio, while money-lending should be limited to a maximum of 10 per cent.