The stock market is highly uncertain owing to interest rate hikes, increasing real estate prices, and everyday commodities getting more expensive because of inflation. The market reflects that on a day-to-day basis. In May 2022, 43% of investors expressed nervousness when it comes to investing. However, investors can minimize their risks by diversifying their investment portfolios. One of the options could be to invest in a new asset class and tap into the early adopter benefits.
Adding a new asset class to your investment portfolio could sound overwhelming at first but understanding the features of a newly introduced investment asset can help you overcome the fear of the unknown. Also, a few techniques mentioned below can help you make an informed investment decision.
Study the Asset Industry
Request investment materials such as a deck, fact sheet, private placement memorandum, or the like, which should give you the details to understand the new asset class. Try to understand how your investment will be utilized. What are the risk factors and return potential? Is the asset class speculative in nature (i.e., crypto) or does it have underlying value like real estate? This will influence volatility. The more speculative an investment is the more volatility it will experience. Understanding these issues will allow you to properly gauge the risk and reward potential based on your own investment appetite and goals.
Low Correlation
When adding a new asset class, you want to make sure it is fundamentally different from what you already own. Correlations vary over time, but you’re looking for an asset class that is not correlated with your current investments as much as possible. This ensures risk is minimized based on the theory of portfolio diversification and ensures that your investment portfolio will be hedged against market volatility and other common risk factors.
Understanding the Mechanisms
Connect with the promoters or manager of the asset class to understand their vision. Ask them how they will be utilizing your funds. How much return can be expected? What does the risk look like? What are the safeguards that they offer? How much liquidity can they offer? The nature of payout, equity, re-investment options, and administrative fees are some important details that you must understand to make a prudent investment decision.
Tax Implications
It is important to keep taxes in mind when investing in a new asset class as there could be regulatory uncertainty with a new asset class leading to unknown tax ramifications. If you don’t consider the tax consequences of your investments, you could end up with much less than you planned. Consult with your tax advisor before making a final decision. Here’s a beginner’s guide to understanding how taxes work for investments.
Consult Your Financial Advisor
Despite having in-depth knowledge about investing, it is critical to have your financial advisor review the new asset class. They might already be aware of it and have readily available insights or they may need to properly evaluate it before giving you advice.
To our knowledge, we at Defynance are the first to make income or the earning power of the educated American workforce into an investable asset. Our ISA Credit Fund is a new alternative fixed income Fund, which is projected to have a very low correlation with equity markets, interest rates, inflation, and other such factors. Our Fund offers passive income, low volatility, growing returns, and the ability to make a social impact by eliminating the student debt burden. It could be just the new asset class you have been searching for. We aim to provide impact without compromising returns. To learn more, visit the Fund website.
DISCLAIMER: THE PRECEDING CONTENT IS INFORMATIONAL ONLY AND BASED ON INFORMATION AVAILABLE WHEN CREATED. IT IS NOT AN OFFER OR A SOLICITATION NOR IS IT A TAX OR LEGAL ADVICE. IT DOES NOT CONSIDER YOUR FINANCIAL CIRCUMSTANCES AND OBJECTIVES AND MAY NOT BE SUITABLE FOR YOU.