Alternative Investments
Alternative Investments
An alternative investment is an investment that is not one of the three traditional asset types (stocks, bonds, mutual funds). Most alternative investment assets are held by institutional investors or accredited, high-net-worth individuals because of their complex nature, limited regulations and relative lack of liquidity.
Alternative investments are favored mainly because their returns have a low correlation with those of standard asset classes. Because of this, many large institutional funds such as pensions and private endowments have begun to allocate a small portion of their portfolios to alternative investments.
At Wayne Messmer & Associates, the alternative investments usually fall under the income-producing portion of the products we offer. These investments include but are not limited to equipment leasing, business development, and non-traded real estate investments trusts. We want to highlight “not limited to” because adapting to the constantly changing times and markets means we are constantly researching alternative investments and opportunities for our clients. In many cases, what you are investing in is a company’s ability to pay its’ bills rather than their ability to turn a profit. That is a powerful distinction particularly in the market we have experienced in recent years.
Prospectuses, literature and informational materials are available upon request.
Examples of Alternative Investments Include:
Non-Traded Real Estate Investment Trusts (REIT)
Years ago, commercial real estate was only attainable by institutional investors and wealthy individuals. Today, with the advent of products such as REIT, many investors now have access to opportunities that were once only available to the cream of the crop.
Diversification and reducing portfolio volatility are important reasons why REIT have become an attractive alternative to the traditional stock or real estate portfolio. Non-Traded REIT by definition are not traded and therefore offer reasonably predicted income streams in the form of dividends. These are typically illiquid assets and more appropriate for long-term investments. However, there are also potential tax advantages to investing in REITs and potential capital appreciation. As with any investment, there are risks in dealing with REITs and they are NOT right for everyone.
Equipment Leasing
An Equipment Leasing Trust gives the investor an opportunity to invest in the business essential equipment that a company may need to operate. Without the equipment, the business could not run, thus making the lease payments a priority for the company.
Equipment leasing programs offer an alternative to investments subject to the volatility of the stock market. This type of program creates income from the lease payments, which is paid out in the form of dividends. They are usually illiquid investments that require a longer time commitment. However, that commitment may potentially provide a platform for greater stability and pay the investor a higher than a normal dividend. Since the equipment is a tangible and durable asset, the investor may also generate additional distributions if the equipment is leased or sold again.
What’s in it for the company?
- Equipment Leasing offers businesses an alternative to purchasing extremely expensive equipment that in many cases become obsolete over time.
- With lease payments often lower than purchase payments, it gives companies greater flexibility with their capital and ability to use it elsewhere.
- Unlike bank loans, lease obligations do not appear as debt on the company’s financial statements, thus making the company more attractive to investors.
- Businesses have the ability to write off lease payments over the course of the lease whereas an outright purchase of the equipment requires a depreciation schedule over five years.