debora-sumopayrollAfter the financial crisis of 2008, many financial firms and their clients recognized the importance of asset allocation and the need to diversify client portfolios. This led to portfolio managers increasingly adding alternative investments to their client asset allocation models.
For those who are not familiar with them, alternative investments are defined as "non-correlated assets," meaning that their performance doesn't follow that of more traditional asset classes such as stocks and bonds. Because these assets move in the opposite direction of traditional investments, they may provide an effective hedge against market downturns. Alternative investments are considered an effective way to balance risk in a portfolio and to provide a "cushion" in the case of a stock or bond meltdown and are appropriate in a small portion of your overall portfolio.
Many people typically associate a hedge fund as the most common alternative investment and for many investors, that's true. Most hedge funds, though, are available only to large investors and require a significant amount of paperwork, high fees, and tax headaches. Many investors are achieving exposure to alternative investments through liquid alternatives such as mutual funds, ETFs and closed-end funds that provide daily liquidity, but have complex investment strategies that seek to retain their non-correlated status.
Cryptocurrencies Beyond Bitcoin
If you're a very aggressive investor, you may want to look at other cryptocurrencies aside from bitcoin. That's right, bitcoin is not the only digital currency. In fact, there are exchanges that buy and sell each day many of these different cryptocurrencies, including ETH (Ethereum), which has soared in price, or XRP which is from Ripple Labs and is being used in blockchain projects involving existing banks.
Thus far, there aren't any products available from traditional or online brokers that will easily allow you to invest in cryptocurrencies, outside of doing so on your own by opening an account with one of the exchanges that buy and sell them, such as Poloniex. But they're coming.
Even with all of this current and future activity, it doesn't seem that any firm, advisor or publication has explicitly classified bitcoin or any other cryptocurrency as an alternative investment. There's little doubt that they're non-correlated to stocks and bonds. They could even be considered a currency
The point here is not to convince readers to invest in bitcoin, GBTC (Bitcoin Investment Trust) or other cryptocurrencies, but to inform them that many others are doing it. As with any investment, some are making money with it and others are losing money with it. These investments are not for the faint of heart, but it's a growing and very real investment opportunity.
Many investors are still skeptical and think that Bitcoin is nothing more than a Ponzi scheme. However, companies like Overstock.com, eBay, Amazon, Target, and Expedia are now accepting it as a form of currency similar to credit cards.
Due to the complex nature of Blockchain technology (the underlying infrastructure of Bitcoin) many don't yet understand it and feel it's of little value, but finance companies like Bank of America, Merrill Lynch, Citi, Credit Suisse, and JPMorgan, John Hancock and the DTCC are running tests with it to improve their current processes.