Invest In Alternatives For Protection

In a time of peril and disaster, everyone needs a few essential items to survive. Water, food, warmth, and shelter come to mind. Those who are prepared with reserves or plans tend to weather disasters better than others.

In a time of economic peril and disaster, essential items are needed for survival. And for years, smart investors have relied on alternative assets for protection in times of peril. It’s not only in times of peril that savvy investors leverage the benefits of alternatives; it’s all the time.

If you dig into the numbers, it’s not hard to see why savvy ultra-wealthy and institutional investors gravitate towards alternatives. The data shows that the more alternatives are allocated to a portfolio, the better the performance of that portfolio.

Source: JP Morgan Asset Management

The chart above establishes that portfolios with alternatives added to the mix perform better and do so at less risk. Data also shows that as investors become more affluent, the more they allocate toward alternatives.

It’s not a surprise that the ultra-wealthy gravitate towards alternatives and that there’s a correlation between allocations to alternatives and an individual’s level of wealth. Individuals with a high net worth (HNW) and ultrahigh net worth (UHNW) are wealthy because they allocate far more alternatives toward their portfolios than average or even less affluent investors.

UHNW individuals, like the members of the online investment club Tiger 21 ($50 million in investable assets), consistently allocate 50% or more of their portfolios to alternatives. The two segments they favor are commercial real estate and private equity.

Besides the ability to earn higher risk-adjusted returns, the ultra-wealthy also gravitate towards alternatives for their protective qualities during downturns and inflationary times – qualities that are currently much needed during the current volatile economic environment.

With inflation currently running at an annual rate of 8.2%, Americans see their buying power deteriorate annually. Unless you have income or investments that keep pace with inflation, your portfolio is at risk of severe retraction. Enter the asset built to counter inflation: commercial real estate.



Mike Ayala has owned and operated mobile home parks since 2007, and has been active in construction and management since he was 15 years old. He graduated from the Associated Builders and Contractors 4-year project management program at age 22 and then became a licensed instructor. He is also the host of the Investing for Freedom podcast.