Alternative Investments and Why They Are More Relevant Today
The typical asset allocation of 60/40 public market investments that has worked well for 40 years is now over. Interest rates decreased to their lowest level in history, giving investors great returns on bonds and equities. Free money and high leverage will have consequences. There is a market paradigm shift that will take years to unfold.
“THE TIMES ARE A-CHANGIN"
Interest rates have been at their lowest levels for 14 years but are now rising.
Inflation is at its highest level in 40 years.
The First significant war in 75 Years
The first world pandemic in 100 years
What are the consequences?
When rates go down, bond prices go up. When rates go up, bond prices go down. We have started to raise rates to combat inflation. The average bond portfolio is down between 6 and 8% and will lose value as rates rise.
Equity funds have lost between 10 and 20% this year. Supply chain, staffing issues, and higher debt costs force analysts to decrease current and forward-looking earnings expectations. Lower earnings expectations lead to lower equity values. As with corporations, individuals will have less spending power due to inflation (food and energy) and higher debt servicing costs on mortgages and other loans. Consumers will eventually spend less on non-essential items.
Markets are expected to continue with high volatility over the coming years. Public stocks and bonds fluctuate based on human emotions.
This is where private equity may fit in as an alternative investment.
Private equity funds purchase companies and assets to add value and create steady cash flow. Real estate, dental offices, mortgages, and storage facilities are valued based on the assets' actual value and the company's growth, not human emotion (trading public stocks daily). What do pension funds, insurance companies, and high-net-worth clients want most? CAPITAL PRESERVATION AND LOW VOLATILITY.
Private equity is the fastest-growing asset class and has historically outperformed public markets. It offers capital preservation, steady returns, and low volatility and allows further diversification in your overall portfolio.
