Logo

← Back to news list

Diversify Your Portfolio with Alternative Assets

July 07, 2022 Blog page image

Any investor worth his salt knows not to put all their eggs in one basket; that means not tying up all your money in just one or two assets but instead diversifying your portfolio, therefore managing your risk. This becomes simpler with alternative asset investing.

What is Alternative Asset Investing?

Alternative assets refer to asset classes that fall outside what is traditional, which typically includes stocks, bonds, and real estate. Due to their alternative nature, these investments are often less liquid and require a longer investment period before any significant value is realized.

In the traditional method, you would go about investing via public markets, where companies sell shares to the general public through stock exchange platforms (FTSE, NYSE). In general, traditional assets are those that most investors would think of when they hear the word "investment". Stocks, bonds, and cash are the main categories of traditional assets, while alternative assets are less traditional and more unexpected investment options.

They also have a low correlation to standard asset classes, which means they don’t always move in the same way other assets do when market conditions change.

Examples of Alternative Assets

Historically speaking, alternative assets and investment strategies are proven to complement and diversify more traditional investments in various market conditions, offering returns that far exceed traditional stock and bond market movements.

These typically include:

Why diversification in investments is important

It may seem rather complex to hold different asset classes in your portfolio, but diversification is a proven technique to reduce risk.

Say, for instance, you hold stocks in only airline companies. Despite how well Airbus and Boeing are doing, for whatever reason, all pilots decide they’re going on a strike the next day. This means all flights are now canceled, and airline stocks start to decline rapidly, leaving you with an investment portfolio that isn’t doing too well.

If, however, you poured an equal amount of capital into railway stocks, you would likely notice a climb in railway stock prices as passengers run to book train tickets since the flights are all grounded.

Diversification aims to maximize returns because you are investing in different areas that all react differently to changes in trends and market conditions. You are essentially putting yourself in a position where your risks are reduced.

Any investment professional would agree that, though it does not guarantee against loss, diversification is one of the most important ways of managing risk and reaching long-range financial goals.

Advantages of Alternative Assets

According to BlackRock, a traditional 60/40 allocation to equities and bonds is no longer enough to meet long-term investment goals. Factors like technological innovation, rapidly growing cities, government focus, need for sustainability, and competition for prime assets are impacting traditional investments and opening up avenues for the development of alternatives.

Because alternative assets behave differently from typical equity and bond investments, adding them to a portfolio helps in:

1. Lowering volatility

Less reliance on market trends and more on the strengths of each investment.

2. Broader diversification

Therefore less risk and enhanced returns.

3. Greater tax benefits

Depending on the regulations in your country or state, alternative investments could provide you with compelling tax benefits, with many of them allowing you to keep more of your profit.

4. Direct ownership

In the case of company stocks or most traditional assets, you own a paper asset which is the discounted value of future expected earnings. Should you invest in a REIT, you would still be far from having your own name listed on a real estate property.

However, when you buy an alternative asset like art, you outright own the asset. So if you buy a house, you own that house. If you buy a mortgage note, you have a lien against a property. If you invest in a private fund, you have direct ownership of whatever asset they purchase.

How Jupiter enables portfolio diversification with alternative assets

As far as alternative asset classes go, cryptocurrencies and NFTs are quickly joining the ranks of collectibles and private equity holdings. Yet, there is still a gap between the realms of physical and digital assets.

In an effort to bring the ownership of real-world assets to a larger base, Jupiter Exchange leverages NFT technology to put iconic physical items on the blockchain in the form of a single NFT and fractionalize them further into a number of unique tokens of equal value. .

Ultimately, we aim to make ownership of the high-end items possible by lowering the price point for people who have traditionally been excluded from market participation. This is made possible by implementation of traditional methods of IPOs. This is why an item with a high valuation will naturally result in a large number of available fractions. Essentially, once an item is listed on Jupiter Exchange, the market controls the price. However, if the buying power forces a steep price increase, we will be able to employ traditional capital market techniques to ensure continued accessibility.

Through our platform, anyone can own the alternative assets traditionally available only through auction houses and online trading platforms. Fractions of NFTs, backed by physical assets, can be further traded on an exchange. Combining these characteristics expands access to a tradable asset class, creates liquidity, and facilitates real-time price discovery for typically illiquid assets that are too often off-limits to most buyers.

This model not only allows you to diversify your investment portfolio, but it also makes you part of a community that shares the same interests as you.

Conclusion

Alternative asset investments are critical for a future-proof investment portfolio. If you find this strategy interesting, take the time to understand the different types of assets available to you and learn about diversification through alternative investments, including liquidity, industry, risk level, and market trends. Doing so will help you choose sound investments that will provide great returns in the future and mitigate risks.

And Jupiter Exchange is the first worldwide platform to create a liquid marketplace for alternative assets.