By Brandon Miller, CFP–
I’m glad that Cold Stone Creamery didn’t exist when I was younger. Somehow, I know that I would have been one of those kids who insisted on three different flavors of ice cream with chocolate and caramel sauce, plus crushed Oreos, gummy bears, brownies, M&M’s, strawberries, Reese’s cups, and, of course, sprinkles, all mixed in. That could have been a stomachache that turned me off ice cream forever.
At least now I’m old enough to know that combinations in moderation make for a way more satisfying blend. The same holds true for your portfolio. You don’t have to own every type of investment there is to make enough money to afford your dreams. But adding some wild cards to the mix can be fun.
If you read my article last month, you know that asset allocation is essential to building your wealth. Owning a mix of stocks, bonds, and cash instruments can help diversify your portfolio so that it’s better able to ride the market’s ups and downs without whipsawing you from castle to outhouse and back again.
While you likely want the bulk of your portfolio to contain these traditional assets, you might also enjoy investing a small percentage in “sprinkles” such as a Chagall or potential Kentucky Derby winner. And by sprinkles I mean a micro-mini-portion of these investments. But still.
Investing in alternative instruments is easier than ever. It used to be that the private capital markets that offered non-traditional investments were pretty much the domain of major players such as pension funds, endowments, and accredited investors (rich people with the paperwork to prove it). But in 2012, Obama signed the JOBS Act into law, which allowed non-accredited investors to dip their toes into the alternative waters. Equity crowdfunding, the last section of this bill implemented by the SEC in 2016, opened up even more options and opportunities.
The democratizing nature of the JOBS Act has led to new investment companies, as well as changes at existing firms, which have opened up alternatives to little guys like you and me. You no longer have to foot the whole six-figure price tag for a filly with a future, but can invest a small amount along with lots of other equine aficionados and still own a fraction of the glory. How cool is that?
And there are lots of interesting things that you can invest in, depending on your preferences. I’m not in any way endorsing the following companies (do your own research, as always), but this list gives you an idea of some of the options open to you today through crowdfunding:
Commonwealth – race horses
FarmTogether – U.S. farmland
Fundrise – Real estate
MasterWorks – fine art
SeedInvest – startup companies
Yieldstreet – notes, real estate, art, and other alternative investments
Adding some of these atypical elements to your portfolio provides a little fun, as well as further diversifying your holdings.
But …there are always caveats, of course.
Alternative investments are generally way riskier than your average mutual fund or bond. Companies just springing up to leverage these new laws obviously don’t have a track record that you can use to help measure your risk. Or the startup you put your money behind could crash and burn before getting their next round of funding. And that seaside condo complex that seems like such a sure thing today could succumb to rising waters in a few years.
It’s common sense then not to get too carried away investing in alternatives. Dropping two or three percent of your investable cash in a company developing an electric airplane is a great way to put your money where your beliefs are. But devoting half your portfolio to that startup is just asking for heartache.
Or a stomachache if we go back to the ice cream analogy. You don’t want a bowl full of mix-ins with just a tiny amount of ice cream, just as you don’t want a portfolio weighted more in art and real estate than stocks and bonds. But a few M&Ms and Oreos on your scoops of French Vanilla and Mint Chocolate Chip can make your treat just a little more interesting.
Brio does not provide tax or legal advice, and nothing contained in these materials should be taken as such. The opinions expressed in this article are for general informational purposes only and are not intended to provide specific advice or recommendations for any individual or on any specific security. It is only intended to provide education about the financial industry. To determine which investments may be appropriate for you, consult your financial advisor prior to investing. Any past performance discussed during this program is no guarantee of future results. Any indices referenced for comparison are unmanaged and cannot be invested into directly. As always please remember investing involves risk and possible loss of principal capital; please seek advice from a licensed professional.
Brio Financial Group is a registered investment adviser. SEC Registration does not constitute an endorsement of Brio by the SEC nor does it indicate that Brio has attained a particular level of skill or ability. Advisory services are only offered to clients or prospective clients where Brio Financial Group and its representatives are properly licensed or exempt from licensure. No advice may be rendered by Brio Financial Group unless a client service agreement is in place.
Brandon Miller, CFP®, is a financial consultant at Brio Financial Group in San Francisco, specializing in helping LGBT individuals and families plan and achieve their financial goals.
Published on March 10, 2022
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