{"id":85895,"date":"2020-02-10T17:00:26","date_gmt":"2020-02-11T00:00:26","guid":{"rendered":"https:\/\/www.biggerpockets.com\/renewsblog\/?p=85895"},"modified":"2024-02-13T18:50:42","modified_gmt":"2024-02-14T01:50:42","slug":"traditional-alternative-investments","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/traditional-alternative-investments","title":{"rendered":"The 3 Stages of Investing: How I’ve Learned to Balance Traditional With Alternative"},"content":{"rendered":"

Recently, I attended a conference for family offices, which are basically private wealth management firms typically having over $200 million in assets under management. While I was there, a discussion about the percentage of alternative investments advisors recommend their clients have in their portfolio caught my attention since, as a fund manager of residential mortgages, my note funds are considered an alternative investment vehicle.<\/p>\n

For most of us on BiggerPockets, our biggest investments are our businesses and our real estate holdings, which are both considered \u201calternative.\u201d<\/p>\n

For many, though, alternative investment options may not even be on the radar. Rather, they tend to invest in more traditional types of investments like stocks.<\/p>\n

(By the way, if you\u2019re curious, most advisors recommend that their clients have less than 10 percent of their portfolio in alternative investments like real estate or private placement funds.)<\/p>\n

But this conversation got me thinking about my own path, and I realized that I\u2019ve gone through three stages as an investor.<\/p>\n

\"free-mentor\"<\/p>\n

Stage #1: Traditional Investor<\/h2>\n

This reminds me of myself at a much younger age. After I graduated from college and was working a corporate America-type of job, I had a financial advisor whose only recommendation revolved around traditional investments (stocks and bonds), managed through his company, of course.<\/p>\n

My traditional advisor considered everything outside his world an alternative investment, including real estate and notes. It almost seemed like anything that he couldn\u2019t earn a fee on or that required more paperwork was considered\u00a0“alternative,” shorthand for \u201cnot for you.\u201d<\/p>\n

Related:<\/strong> 5 Alternative Exit Strategies to Liquidate Properties Fast<\/a><\/em><\/p>\n

I followed his advice and was seeing good results at first, but after time, I was no longer getting positive outcomes. Then, I started thinking about a concept he used, diversification, and started to take that concept seriously. That\u2019s really what led me to real estate.<\/p>\n

Stage #2: Alternative Investor<\/h2>\n

It wasn\u2019t long before I realized that if I was I going to invest, I wanted to be in assets with collateral (real estate and notes) or in something that I\u2019m more familiar with (like my business).<\/p>\n

Over the years, I\u2019ve come to believe that the biggest differences between traditional and alternative have more to do with control and the collateral behind the investment (or lack thereof). After all, as Warren Buffett said, \u201cInvest in what you know.\u201d<\/p>\n

In my case, I quickly switched my investing model from giving up control to taking it back. My percentage of alternatives jumped up to about 90 percent at this point, with only 10 percent in traditional vehicles like the stock market.<\/p>\n

I get that if you\u2019re super wealthy like a typical family office, it kind of makes sense that you have to give up some control. Safety and security may take priority over higher returns, especially if you\u2019re more concerned with asset protection than yield. Plus, with more capital, it may be harder to deploy it all.<\/p>\n

But for me, the game was on. I went all-in for real estate (and later, private lending and notes).<\/p>\n

\"credit-report-loan\"<\/p>\n

Stage #3: Alternative + Traditional Investor<\/h2>\n

After growing my portfolio size quite a bit in the last few years, I\u2019m starting to lean back in the other direction\u2014increasing my percentage of traditional investments. Of course, I\u2019m still investing in alternatives, but with more investment dollars to deploy, I just don\u2019t have the bandwidth to deploy it all myself.<\/p>\n

The difference this time is not only my knowledge but also the type of expert team I\u2019ve developed to help me pull this off. Today, I feel much more comfortable with my traditional investments and the way I handle risk.<\/p>\n

For example, years ago I use to invest through a broker and park my money in the market. Today, I invest in the market for as short as one to two minutes, a few times a month. The majority of the time, I remain in cash and out of the market. My exposure and risk is very limited, and it\u2019s also more defined and controlled.
\n
\nRelated:<\/strong> 5 Areas to Study to Know if You Bought a Good Real Estate Note Deal<\/a><\/em><\/p>\n

What Stage Are You in?<\/h2>\n

As I look back, my percentage of traditional investment dollars went from a large percentage when I was starting out, to a small percentage as I went all-in as a real estate investor and entrepreneur, to a more moderate percentage of my overall portfolio as I\u2019m staring retirement in the face.<\/p>\n

If you\u2019re like me, the way you view risk may change as you get older, or you may start to prefer more passive investments. It\u2019s all about your time horizon, your knowledge, and ultimately, your preferences.<\/p>\n

What many don\u2019t realize is that you can diversify among alternative investments just as you can with traditional by investing in different asset classes. Anything from private placements, precious metals, mortgages, and tax liens, to any type of real estate can be considered alternative.<\/p>\n

 <\/p>\n

So, what percentage of your portfolio is in alternative investments versus traditional, and why? How do you maintain control and manage risk?<\/em><\/p>\n

Let’s discuss below!<\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"

Many investors don’t even have “alternative” investments on their radars. It’s time to take a second look at how these options can diversify your portfolio.<\/p>\n","protected":false},"author":807,"featured_media":118544,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[7399],"tags":[],"class_list":["post-85895","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-diversifying-investments"],"acf":[],"comment_count":0,"_links":{"self":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/85895","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/users\/807"}],"replies":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/comments?post=85895"}],"version-history":[{"count":0,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/posts\/85895\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media\/118544"}],"wp:attachment":[{"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/media?parent=85895"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/categories?post=85895"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.biggerpockets.com\/blog\/wp-json\/wp\/v2\/tags?post=85895"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}