For more than two decades, Michael Niemczyk has worked in the financial industry sector, guiding individuals, families, and corporations toward secure and prosperous retirements. In the following article, Michael Niemczyk and Associates peel back the layers of traditional markets to reveal the untapped potential and unique opportunities that alternative investments offer.
When one hears the word “investment”, what automatically comes to mind are cash, bonds, or stocks. However, these investments are only a small part of the whole picture – some individuals go beyond the traditional and opt for alternative investments.
Simply put, an alternative investment is any type of investment outside of the bond, currency, and stock markets. Michael Niemczyk explains that these investments encompass assets, investments in hedge funds, commodities trading, digital assets, and more. They differ from the traditional types as they cannot be sold or converted to cash.
Many individuals opt for alternative investments to avoid middlemen as well as to maximize profits. Alternative investment assets under management generated $13.7 trillion in 2021 and is expected to reach $23.3 trillion by the year 2027.
Below, Michael Niemczyk and Associates discuss alternative investment options as well as the various benefits and risks associated with diversifying into non-traditional investments.
Michael Niemczyk Discusses the Best Alternative Investment Options
Michael Niemczyk and Associates report that real estate is the most common type of real asset and is considered to be the largest asset class. Plenty of investors choose real estate because it is characterized similarly to bonds – property owners generate income from tenants and there is also equity as the main goal of owners is to increase the long-term value of the property which is referred to as capital appreciation.
Speaking of real assets, commodities are oil, natural gas, precious metals, agricultural products, and other natural resources. The value of these commodities rise and fall depending on supply and demand, that’s why investing in them is deemed profitable.
Michael Niemczyk says that private equity refers to an investment made into private companies or into those unlisted on a public exchange. The subsets of private equity include:
- Venture Capital (for startup companies)
- Growth Capital (for companies looking to expand or restructure)
- Buyouts (purchase of the company or one of its divisions)
Aside from providing capital, private equity investors also provide benefits to the firms such as mentorship, industry expertise, or assistance in talent sourcing.
A hedge fund is a pool of investors’ money used to employ high-risk investing strategies with the aim of a high return on their investment. The investors hire a hedge fund manager to execute their strategies like market neutral, long-short equity, quantitative strategies, and volatility arbitrage.
Hedge funds are typically exclusive and available only to the elite and institutional investors.
Michael Niemczyk and Associates notes that Peer-to-Peer Lending, or P2P, is a relatively new type of alternative investment. Investors pool their money, loan it to an individual, and receive repayment with interest. Investors typically get higher returns with P2P lending compared to traditional saving vehicles.
Benefits and Risks of Alternative Investments
- Higher Potential Returns: Alternative investments can potentially provide higher returns than traditional assets over the long term. This is because these investments typically target niche markets, underpriced assets, or emerging industries which means less competition for investors.
- Access to Unique Assets: Michael Niemczyk and Associates note that another advantage of alternative investments is access to unique asset classes. Investments like venture capital and private equity allow investors to tap into startup companies with high growth potential, commodities, private market debt, and other unique asset classes that help diversify their portfolio and get high returns.
- Higher Chance of Capital Preservation: The capital invested in alternative investments, particularly real estate or infrastructure, is potentially more stable during challenging economic times like market downturns compared to traditional investment options.
- Lack of Transparency: Investments made in less transparent assets like real estate, hedge funds, or private equity make it hard for investors to gauge the credit risk that these investments can bring.
- Limited Information: Necessary information can be difficult to gather from alternative investments as they may not have the same level of disclosure as traditional investments.
- Illiquid Assets: Many alternative investments often tap into resources that can be hard to sell or convert to cash immediately.
Michael Niemczyk says that alternative investments can help investors diversify their portfolios and potentially receive significant returns. However, much like any type of investment, they should learn its potential risks, do thorough research, and ensure that they understand the process before making any decisions.