Alternative Investments – Are They Just for the Wealthy?
We hear a lot these days about alternative investments. Wall Street firms regularly tout their expertise in these investments and try to convince us we need them in our portfolio.
Initially, alternative investments were only available to what most would consider the wealthy.
The SEC set the definition of the wealthy with their accredited investor definition. To be eligible to invest in these alternative investments, one has to have an income of at least $200,000 (individual) or $300,000 (joint) for the last two years. Additionally, the rule states the investor expects income to continue going forward.
If the income requirement is not met, accredited investors must have a net worth of at least $1,000,000 (exclusive of personal residence). Though that group is growing, it leaves out millions of people who could benefit from the diversification offered by this asset class.
One common theme in the early days of these investments was high fees. In the beginning, managers charged investors 2% of the amount invested plus 20% of profits.
So here’s what that means.