Alternative Investments

Dear ONYX Community,

Thanks to everyone who joined us last month, and a special note of thanks to Onyx co-founder Jerel Registre for providing a great overview of alternative investments and breakdown of the factors potential investors need to take into consideration. If you weren’t able to attend, don’t worry – we’ve got you covered! We’ve included the key points below, and you can find a more detailed recap in the attached pdf.

So, What exactly are Alternative Investments?

They’re things like real estate, commodities, infrastructure, and private equity. They’re not as mainstream and come with a bit more risk than conventional options like stocks and bonds. 

Alternative investments are privately owned, less regulated, and typically available only to accredited investors. While they pose higher risks, they also promise potentially higher returns.

Am I ready?

Before you dive into the world of alternative investments, it’s important to make sure you’re financially prepared. Got your emergency fund locked down? Maxed out those 401k contributions? Great-now is the time for discerning your investment goals and risk tolerance, and gauging how comfortable you are with not having instant access to your funds (a/k/a illiquidity). 

Luckily Treasury Bonds and CDs provide a safe way to test this. You’ll likely be fine if you can purchase a CD or treasury bond and keep it until it matures.

What About the Risks?

Every investment has its own set of considerations and risks. Alternative investments often have high minimum investment requirements, fees, and limited past performance data. Plus, with alternative investments it can be difficult–if not impossible–to get your hands on your cash right away when you need it.

The SEC’s ‘accredited investor’ classification aims to safeguard investors by ensuring they have the financial sophistication needed to understand the risks, and the financial resources needed to withstand losses. 

I’m ready and I know the risks–how do I begin?

Getting into alternative investments will look different based on your circumstances. This realm used to be exclusively for accredited investors, but in recent years crowdfunding platforms have increased access for the average person. 

Accredited investors, on the other hand, have more options to explore. To guide your decision making process, consider your level of industry expertise, investment goals, and preferred level of involvement.

Active vs Passive Investing

Are you more of a hands-off investor or someone who likes to get in the thick of it? Passive investors may opt for paying professional money managers, which grants access to a wider range of investment opportunities and their professional expertise. Active investors, on the other hand, typically seek opportunities that align with their interests and where their active involvement can have an impact. 

Whether you’re a seasoned investor or just starting out, there are options for exploring alternative investments. However, you have to make sure you’re ready to handle the ups and downs by first establishing an emergency fund, maximizing 401k contributions, and experimenting with CDs and treasury bonds as a safe way to test your ability to withstand illiquidity. While the prospect of higher returns sounds enticing, it’s also important that you fully understand the risks associated with each investment, and take the time needed to find avenues suitable to your level of expertise and financial circumstances. 

We hope you found this helpful! If you missed this session, check out the video replay–it has tons of additional information that couldn’t fit into an email recap. Or you can check out the attached pdf, where we explain alternative investments in more detail and further outline key considerations and steps to take before diving in. 

We look forward to seeing folks at the next Onyx meeting!

Warm Regards, 

Onyx Team


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