Bloomberg reporter Meghan Morris recently brought to light a new asset trend for investment firms. Rather than going after the spectacular success that can come with playing the stock game, many are turning to alternative assets such as real estate and private equity. And they’re doing so for what seems to be a counterintuitive reason: the alternative investments are actually quite conservative. The realists of Wall Street have often cautioned against falling in love with stock picking. The latest “us v. the establishment” proclamation has come from the cartoonist Scott Adams, creator of the popular Dilbert strip. (Confession – in my house we’re big fans of Dilbert, but only for the strips which have Wally in them.) In a recent blog, Adams takes investment advisors to task with the charge that they can’t really grow your money for you. Numerous studies have proven that picking specific stocks is not a winning proposition, and at some point the house always wins. Instead, Adams writes, one should balance the risk of stocks by diversifying within the asset itself. This can be done by investing in broad market ETFs. Investment firms have come to realize the problem, but they have a different take on the answer. Alternative assets can make excellent investment opportunities which can be managed without having to engage in a betting framework. The nature of assets such as real estate and private equity make them ideal candidates for business models that follow more traditional patterns. Find a good product, develop it professionally, and then realize the profit. Annualized returns often come in at relatively staid low double digits – think 11-12% - but they do so consistently. Investors are noticing, and the firms buying these assets have seen incredible growth as a result. Individual investors can also reap the rewards of being conservatively alternative. Those who choose to go self directed usually pick assets that are solid, steady, and (frankly) perhaps a bit boring. A common asset choice amongst these investors is a rental property in a half decent location. By properly maintaining the property, finding tenants is usually not an issue, and the rental income itself serves as the percentage points that make the investment worthwhile. There’s no shame in dreaming big, but, as the big firms are discovering, there’s no shame either in being successful.
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