According to vendhq.com, 40% of customer in-store purchases are impulse buys – items the customer hadn’t planned on buying when they went to the store that day. To take advantage of these impulses, brick-and-mortar stores will position certain items they want to move in high volume near checkout stands.
Impulse buying shouldn’t surprise any of us. It’s basic human psychology. We typically go with what’s convenient. There may be another higher quality item and maybe for less money somewhere else in the store. Still, most consumers won’t bother looking because they’d have to put energy into the endeavor.
Mainstream investments like stocks are much like impulse buys. They’re convenient. Anybody can download an app and start buying and selling stock within minutes – all from the comfort of one’s bed. Not only are they convenient, but it’s what dominates investor attention.
Stocks and other liquid investments like crypto are all financial news, social media, and the internet talk about. It’s what we all grow up hearing about, and stocks are even ingrained in our retirement plans at work. What’s easier than choosing a mutual fund for your 401(k)?
What are alternative investments, and why aren’t they mainstream? Their namesake alone explains why alternative investments aren’t mainstream.
Alternative investments are any investment class not tied to Wall Street like stocks and bonds.
Although alternative investments also entail alternative investment strategies like derivative and hedging trading strategies, the two main alternative investments non-mainstream investors are primarily focused on (and the two that I will be referring to when discussing alternative investments) are:
- Real Estate.
- Private Company Investments (i.e., private equity).
Why aren’t alternative investments mainstream? They are not convenient, and they are not in people’s faces.
Alternative investments like real estate and private equity are not convenient. You can’t buy real estate or private equity stakes at the simple swipe of your phone, like with stocks and crypto. It takes a lot more thought and analysis than what mainstream investors are willing to commit.
Stocks and crypto are not unlike impulse buys that are usually cheap and convenient at supermarket checkout stands. You can buy as little as one share of stock – fractional shares even – all on your phone.
Alternative investments are neither cheap nor convenient. Even passive investments in real estate and private equity where capital is pooled with other investors mean that minimum investments are in increments of tens of thousands of dollars and not single dollars or even pennies as with the stock market. This high barrier to entry is why alternatives aren’t mainstream.
We’ve established that alternative investments aren’t cheap or convenient. They’re also not talked about on social media, financial news, or the internet. They’re not sexy like crypto. This is due in part to the fact that they’re illiquid.
Because of this illiquidity, you won’t hear your financial planner or advisor talk about alternatives. They can’t churn an account for fees and commissions with pricey illiquid assets. Liquid stocks are cash cows for financial planners and advisors. Real estate and private equity with 5-year+ lockup periods or commitments? Not so much.
The fact that the crowds ignore alternative investments is one of the principal reasons ultra-wealthy investors are drawn to them. Affluent investors prefer private market alternatives because they’re immune from stock market volatility – with some segments even immune from inflation. Thus, alternatives are immune from the madness of the crowds.
Even though they are not talked about as much as stocks, that doesn’t make alternatives inaccessible; they have never been more accessible, especially since the recent SEC changes lifting the advertising ban in certain circumstances.
In addition, there are multiple investment and crowdfunding platforms geared specifically towards passive investment opportunities in private equity and real estate.
The internet is one way to learn about alternative investment opportunities. Good old-fashioned networking is the other way. Seek and join local investing clubs and groups in person and on social media. Get involved in the community. Find and talk to experienced investors.
It has never been easier to learn about and invest in alternatives with the internet and social media.
Just like finding the best products in a supermarket will take some effort, finding the right alternative investments to participate in will also take some effort.
If you want the convenience of impulse stocks, download Robinhood. Still, if you want above-market returns insulated from Wall Street volatility, it will take some effort to seek out and analyze potential alternative investment opportunities.
It may require more effort and brainpower, but as many ultra-wealthy investors can attest, it’s well worth it.
Kyle Jones is a co-founder and Key Principal of TruePoint Capital, LLC. Kyle is responsible for the company’s strategic planning, investment decisions, asset management, and overseeing all aspects of the company’s financial activities, operations, and investor relations.
Kyle obtained a Bachelor of Science degree from Texas State University – San Marcos, where he also played Division 1 Baseball.