One of the objectives of any investment portfolio is to protect oneself from potential risk. A common strategy in pursuit of this objective is diversification. In fact, it’s one of the basic measures historically used by investors to hedge against uncertainty. So, if one part of an investment portfolio is hit hard by economic circumstances, other parts won’t be — due to diversification. It’s Investment 101, isn’t it.
Well, this principle of diversification is one reason why alternative investing has been on the rise in recent years (in addition to other reasons, of course, such as higher returns, more manageable risk, etc.). Since alternative investments, by definition, constitute an alternative to more traditional investments, it also stands to reason that such investments are exposed to risk in alternative ways, too.
A wide range of alternatives
Of course, what adds to the potential for diversification with alternative investments is the fact that the definition of what constitutes alternative investments is very broad, too. They can range from investing in start-ups and venture capital, to expanding into fields that might be neglected by more traditional investments, such as technology, or even commercial real estate.
In fact, as expanded upon by investment specialist Dan Brewer, in an article published at Benzinga, something like commercial real estate possesses traits and features that could protect a portfolio from risk such as a recession, which as Brewer points out, some are predicting to be a 100-percent certainty within the next few years. Although any such prediction should be taken with a grain of salt, and any good investment portfolio should protect itself from all risk, including a potential recession. Hence, the focus of this article, right?
As Brewer points out, commercial real estate such as senior housing, multi-family housing, and self storage — all allow investors to weather the potential of a recession within the next few years. Why? Because they all have characteristics that make them less vulnerable in a downturn.
So, for example, with senior housing, demographics show that as the population continues to age, so, too, will investment for housing for seniors. Recent research already shows that trend. The same goes for multi-family housing. As more people are seeking to rent such accommodations, space is becoming limited, thus increasing demand in the sector. Even the self storage sector is showing short- and long-term resilience because of the low overhead involved, and also because the need for self storage increases as residency uncertainty also increases during a downturn.
But these are only a few examples. The point is that alternatives exist for your investment portfolio that protect you from the risks associated with other more traditional investment options, including risks of a downturn or recession, which any good investment strategy should hedge against to some extent.
ASCEND GRP is an asset-management firm, with offices in Toronto, Richmond Hill, and New York, that services clients seeking investment opportunities worldwide.