![]() Some investors even have access to a brokerage-linked 401(k) account within their employer’s plan. In general, asset location suggests that investments with a high tax-cost ratio should go into tax-sheltered accounts like an IRA. In What Type of Account Should an Investor Place Liquid Alts?īefore you go about putting money to work in liquid alts, you should know how they work tax-wise. For that reason, investors must carefully weigh the risks and rewards of liquid alts so they understand the possible perils of these sometimes-complex strategies. Recall the popularity of managed futures shortly after the Great Financial Crisis-managed futures performed incredibly well relative to stocks from 2007-09, but then went on to produce mediocre returns after money poured into them. The downside is that once-winning strategies might suddenly underperform when market regimes shift. Investors also seek the perceived safety of some alternative areas when the stock market turns volatile. After all, everyone wants investments that zig when other assets zag. Liquid alts might be particularly attractive to investors seeking to diversify their portfolios of index stock and bond funds. With the ETF wrapper, so long as you have enough capital to purchase a single share, you can get in on the game. There still might be elevated investment minimum requirements for some mutual funds, however. Unlike with most hedge funds, you do not have to be an accredited investor. You simply need a brokerage account to house the ETF or mutual fund. Who Can Buy Them and Why?įor the most part, any investor interested in alternative investments can purchase alts. Still, the ETF wrapper makes buying and selling efficient with liquid alts. Bespoke markets exist and time-consuming bilateral deals must take place in some cases. stocks, it is not as easy as clicking a button during the trading day to execute transactions. Many of these investments are not easily bought and sold. Types of assets found in liquid alt strategies include real estate, wine, art, commodities, private equity, and distressed debt. Available today are liquid alt investments based on macroeconomic event trading, options (puts and calls), market-neutral strategies, trend-following algorithms, long-short positioning, and nontraditional bonds.Īt a high level, liquid alts are products that are not typical long-only equity or fixed-income funds. Liquid alternative investments might first be thought of as a kind of hedge fund-like strategy, but there are many other types offered to everyday investors in today’s landscape. It’s also important to understand what are often high and non-transparent fee arrangements with liquid alts. Those interested in adding liquid alts to their portfolios should first carefully consider their risk and return objectives. This niche group of assets features strategies that might be opaque to novice investors, so it often helps to work with an experienced financial advisor when venturing into the space. ![]() Liquid alts are directed at retail investors who cannot otherwise access areas like hedge funds and complex products meant for ultra-high-net-worth investors. They often come in the form of exchange-traded funds (ETFs) or mutual funds. Liquid alternatives (or “alts” for short) are investment vehicles that are thought to provide diversification benefits to traditional portfolios made up of stocks and bonds.
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