Featured Article by Fuquan Bilal
Private funds are becoming increasingly attractive to investors. As more understand their superior benefits, and the necessity of this type of asset in their portfolios, both individual investors and institutional ones are weighting their portfolios more heavily with them.
Avoiding Volatility
One of the big reasons for the shift to private funds from publicly traded REITs and the stock market is avoiding market volatility. It’s no secret that those publicly traded vehicles have been trading at incredibly high multiples. Many are speculative gambles at best and we’ve already seen them begin to tumble. One recent expert forecast projects an 80% chance of a new recession within the next 36 months.
Even those stocks which might be close to being priced right, will almost invariably suffer with big selloffs. It just gets emotional. And the selloff gets even more irrational than the rise.
Some of us invest because we want gains and growth. All of us invest for security. If you were on a train and knew there was an 80% chance the brakes were going to go out after the next stop, you’d probably get off right? Well, losing your entire life’s work and investments is an incredible tragedy too. Especially when it is avoidable.
If we are investing for income, or wealth preservation, we want those dividends and capital to be there when we need it. The thing is that we never really know when we’ll need it.
We may not be able to work anymore after tomorrow. Or we could have another 20 years. We don’t know. What we do know is that we need some balancing of this volatility, so that when some of our assets slow in performance, others are making up for that.
The Wrong Keys
Another big shift in investors recently is from direct investment in single family homes and turnkey investment programs to private real estate funds.
Even most of the biggest public funds have realized they really don’t have what it takes to manage these portfolios themselves. They have passed a lot of those assets on, and are letting those with better systems and experience and local expertise handle it.
Turnkey rental property investing spiked over the past few years. So many people who didn’t even think of real estate investing until 2008 are now self-proclaimed gurus, and are pushing turnkey properties, without really having sustainable systems in place.
A lot of these buyers are finding out these programs weren’t the keys to financial success they thought they were.
You’ve got to make sure the person behind the investment can really deliver on those promised yields. That they have a plan for what’s next.
Many investors are just finding it makes more sense to invest in a fund that can give them the same promised yields, without the risk and headache that comes from directly owning these properties.
Self-Directed IRAs
Then there are millions of Americans who are waking up to the fact that they now have the ability to direct their own IRAs and retirement investments. They don’t have to abdicate that, and leave it to chance or a broker who doesn’t have their best interest at heart.
Some have $100,000 in these accounts. A few might have as much as $300M. They can self-direct their investments into private funds with good risk-reward balance and nice yields.
Diversification
This is not about an exodus from stocks and fad gurus. Someone will still likely want to own a share certificate for Apple just so they can pin it on their wall. What it is really about is diversification, and creating a buffer against the future.
If you can pick up great yields and gains in the process, that’s awesome.
The smart money is finding these things in alternative assets. Especially private funds which are already internally diversified. For example in tax liens, mortgage notes and real property. That model offers great simplicity, with all the other benefits they need to check the boxes, like tax breaks.
What are you investing in, and why?
For more information:
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