Alternative investments are good but caution is always necessary
According to experts, deciding on where to put your money is getting increasingly complex as the traditional cash deposits, property and shares are not enough.
Investors and super funds are increasingly looking to other assets such as infrastructure, corporate credit, hedge funds and private equity. These are providing protection against falls and helping diversify growth options because of the increasing turbulence in the financial markets.
Stefano Cavaglia, Findex head of investment research cites example when share prices tumbled in January and February, but areas such as infrastructure, bonds, credit and real estate rose.
He says, “That’s testament to the whole concept”. Stefano says, “Don’t bet the house on one or two asset classes.”
Rarely do all investment types sink at the same time. During the GFC almost everything went south, but government bonds did very well as interest rates were cut.
He says investors are looking for alternatives and the trend is likely to continue as more options become available, their quality and risk management improve, and products become more liquid, which means they’re easier to buy and sell.
However, he calls for caution for novice investors approaching alternatives.
“These are complex investments that require sophisticated consultants to find the road to solid risk adjusted returns and are willing to let you be in the driver’s seat.”
Infrastructure investments, such as airports and utilities, have become more popular and while many super funds invest directly in these assets, the options for individual investors remain limited.
Catapult Wealth director Tony Catt also has noticed an increase in people moving towards non-traditional assets, but warns they need to understand where their money is going.
He says, “Everybody is looking for something that’s not correlated to the traditional asset sectors of equity and property”.
“But it’s a bit of a two-edged sword, though, because it comes at the expense of liquidity and transparency in fees. Not everyone’s comfortable. Traditional sectors can be lower cost, liquid and easy to understand”, Catt continues.
He says investors must first understand the structure of the investment. “Don’t ever buy anything until you know how to sell it — there are still some funds today locked up nine years after the GFC.”