International Financial Crisis Leads to Increase in Alternative Investing

The Dow hit rock bottom this past March, leaving the index down an incredible 1,437 points in just the first two weeks of the year. The S&P 500 lost 2.3% and the Nasdaq plunged 2.7% to its lowest level since October 2014.  It is not a big surprise that investors are now rushing to exit the stock market and opting for investments that hedge volatility.  In fact, with the current unpredictability of the U.S. stock market and the extreme fluctuation of the Chinese currency, alternative investing has become a widespread option for global investors.

Many modern-day investors who are looking to maximize their returns while diversifying risk are increasingly turning to alternative investing options.  These modern investments typically offer opportunities to obtain higher returns without a significant risk. In 2016, high yield funds are set to gain momentum from investors positioned around the world. Five of the more popular high yield investments are listed below:

• High Yield Bonds – These bonds are issued by companies whose financial strength is not rocked solid so they must pay a higher yield than other safer alternative in order to attract investors. You can buy individual high yield bonds, but most investors would find high yield bond funds to be a more attractive and diversified option

• Real Estate Investment Trusts (REIT) –The investment portfolio of a REIT may generally consist of income-producing commercial real estate that the REIT directly owns and manages. Returns to the REIT’s investors will come in the form of the net cash flow generated from the rents received after operating expenses on the underlying properties and the gains received upon the sale or refinance of the underlying properties. As direct owners of the real estate, a REIT may use financing or leverage to acquire the properties, and as an owner, the REIT receives all the benefits and drawbacks of ownership – including, having its investors’ equity in a first loss position if there is a change in real estate values.

• Retirement Income Funds – Created by the mutual fund industry, retirement income funds are professionally managed with the objective of generating consistent monthly or quarterly income. They provide an attractive alternative to managing your own portfolio and can also function as an alternative to an immediate annuity.

• Trust Deed Investments – Trust deeds create a security interest in real estate for the repayment of loans. Like senior mortgages, first trust deeds enjoy a priority position over other encumbrances on the property.  Investors also have the ability to self-select those trust deeds in which they would like to invest. As a result, investments in trust deeds may provide investors with the opportunity to earn 7% to 9% annualized returns with a cushion to help preserve the investor’s principal investment against market fluctuations or potential borrower defaults.

• Opportunity Fund – An Opportunity Fund seeks to provide attractive risk-adjusted returns to its investors through debt and equity investments within the real estate industry. Such investments in an Opportunity Fund will include, without limitation, direct and indirect equity investments, joint ventures, deeds of trust and mortgages, participating loans and other real estate related investments. The Opportunity Fund generates revenues primarily through the return on its equity investments and on the interest paid on the mortgage loans and trust deeds in its portfolio by the underlying property owners.

You have many options when obtaining modern investments with high yield funds. If you’re looking to exit the stock market but still want to increase your retirement fund, this could be the right time for you to add alternative investments to your portfolio.

This is a guest post written by Amanda Rumore, from Wilshire Finance Partners