You didn’t have to be an investor, you just had to be alive over the last few decades to know that the stock market is far from a predictable or even stable thing.
The bursting of the “Dotcom Bubble” saw the Nasdaq index peak and then fall more than 76% from March 2000 to October 2002 thanks to speculative investment in seemingly miraculous new “internet companies” that couldn’t deliver on outlandish expectations.
Hot on the heels of that meltdown came another — the Great Recession of 2008, triggered by a general lack of regulation in several corners of the financial industry.
Which brings us to today and the most unique crisis that most of us will ever experience — COVID-19. Now considered the herald of the COVID-19 recession, the 2020 stock market crash, or “Coronavirus Crash,” was a global stock market crash that ran from February 20, 2020, to April 7, 2020, and was the most damaging since the Wall Street Crash of 1929 that kicked off the Great Depression.
If that brief history of economic instability freaked you out a bit, we can’t blame you. But what we can do is help you improve upon one of the few elements of wealth management that you can control — how you choose to allocate your assets to ward off loss through inevitable market fluctuations.
So let’s get started by diving a little deeper into the ins and outs of that term “diversification” that we hear so much about and then explore the alternative investments today’s current or aspiring high-net-worth individuals (HNWIs) can turn to in order to protect their portfolios.
Why Modern Investors Are Diversifying Into Alternative Investments
If the past 20 years have taught us anything about wealth management, it’s that absolutely no single asset class is immune to failing. That’s exactly why modern investors are looking to alternative investment sources to diversify their investment portfolios beyond simple stocks and bonds.
But what exactly does that mean, “diversify”?
When it comes to wealth management, diversification is the process of investing in different types of assets to shield your portfolio from the losses that come with inevitable ups and downs in the stock market.
Diversification actually works because of these natural fluctuations. While every market will flex, it’s extremely unlikely they’ll all flex the same way at the same time — which puts you at less risk of experiencing dramatic losses and in a good position to catch the gains.
Which leads us to our next point: Effective diversification is done with purpose, not by throwing a dart and picking the first asset you hit.
A well-diversified portfolio will contain your own unique selection of assets that align with your risk tolerance which still meeting your goals for growth. If you aren’t sure where you stand with your risk tolerance, try this quiz from Vanguard to help you decide.
Ultimately, investors who build long-term, carefully-diversified portfolios have a much easier time generating returns and riding out the losses than the high-stakes gamblers who bet all their money on a single asset and often lose big in the stock market.
Next up: Today’s strongest alternative investment types to look for when building your balanced portfolio.
Alternative Investments Worth Considering in a Digital-First World
Between technological developments and a growing population of adults who are more financially savvy than their predecessors, actively seeking unconventional sources of income, and excited to manage their wealth digitally; we’re witnessing the birth of a new asset class that is changing the investment world.
While the term “digital asset” can be used to describe digital tokens that represent traditional and even physical assets, in this case we’re talking about assets that exist only in the digital realm.
While digital assets are still a new idea for many investors, they’re just as powerful as any traditional investment asset. Just ask the Winklevoss twins — the world’s first Bitcoin billionaires.
And according to a recent survey of almost 800 financial professionals across the U.S. and Europe, institutional investors are very interested in digital assets.
The most popular digital asset among these investors? Bitcoin — a type of cryptocurrency.
With that in mind, let’s talk more about cryptocurrency as well as some other popular digital assets you can use to round out your modern investment portfolio.
Cryptocurrency is digital currency that is secured using cryptography and “backed” by a distributed network of computers. Its decentralized nature means it exists outside the control of any central authority, which increases its transparency but also its general instability (for now).
Cryptocurrency — often shorted to “crypto” — exists solely in the digital sphere, and it’s leading the way as far as introducing the masses to digital assets.
Fidelity has launched a digital assets subsidiary, the crypto-focused investment firm Pantera Capital has delivered a 24,000% return to investors, and investment advisory firm Cambridge Associates encouraged investors to try digital assets in their report “Cryptoassets: Venture into the Unknown.”
To get started with crypto, do your research and sign up with a credible exchange that enables you to create a crypto “wallet” and start buying and selling coins. But remember, as easy as it is to dive into crypto, it’s also as easy to mess it up. Learn the lingo and get a running start with this overview from Hacker Noon: “A beginner’s guide to getting started with cryptocurrencies.”
There are billions of websites online — which makes websites a huge asset class when you think about them as an alternative investment resource for your portfolio.
If you want to invest in websites without making website management your full-time job, the best approach for you is probably buying, improving (or just holding), and “flipping” — to use real estate lingo — any type of website that generates income. Often, these include blogs, digital publications, and ecommerce stores.
To find established (and, ideally, money-making) websites that are for sale, you’ll want to look at online website marketplaces. Flippa is quite common and a good place to start.
A little more specific than websites are the domain names upon which they exist.
A domain name is a unique address people use to access a website. For example, the domain name of the website you’re reading this on is “kubera.com.”
To revisit the real estate metaphor, domain names are kind of like land in the fast-growing city that is the internet. As more people want their own space on the internet, the more valuable domain names become.
For investor Igal Lichtman, for example, the value of his domain names would have amounted to almost $75,000 for just a handful of some of his smartest investments — if he had properly prepared his beneficiaries to take ownership of his domains (more on that in the next section!).
While there are several ways to generate income from purchasing domain names — developing a website, displaying ads, etc. — the strategy that makes the most sense for someone who’s interested from an investment standpoint is again a buy/hold/sell approach.
GoDaddy, a recognized domain registrar where you can search for and purchase domain names, has a simple guide that will help you start wrapping your head around the process of buying and selling domain names for profit.
Remember that these are just some of the most popular digital assets for investors who are just diving into the alternative realm. There are plenty of other options, including trademarks, SaaS platforms, revenue-generating social media accounts, and tons more. In fact, KPMG estimates that there are more than 2,000 digital assets on the market. So if you didn’t click with any of the digital assets we discussed today, stay tuned as we cover more digital assets on our blog in the future — you’re bound to find a good fit for your portfolio.
How to Manage All of Your Alternative Investments
While you might be ready for alternative investments, chances are the traditional portfolio management tools you’re used to aren’t up for the challenge.
When you’re ready for a portfolio manager that’s made for the digital world in which we live, turn to Kubera.
At Kubera, we brought together the ease of a spreadsheet with the power of high-tech integrations to enable you to manage and optimize every single one of your assets — from traditional investments like stocks and bonds (in any currency!) to alternative assets like crypto, domain names, websites, and more.
And not only that, but Kubera’s beneficiary management feature also empowers investors to create a secure and streamlined path for passing their investment portfolio down to a pre-determined heir when the time comes. No more lost domain names or crypto wallets here!
Kubera is the only portfolio management solution that can keep up with the alternative, digital investments current and soon-to-be HNWIs are making in the modern world.
Join the club and sign up for your free trial of Kubera today.