UTICA — Typical investments in stocks, bonds, and money market funds still make up the foundation of most investment portfolios, but alternative investments can offer a variety of ways to diversify, says one Utica wealth-management professional.
“There’s this whole other universe of ways to make money,” says David K. Griffith, owner of D.K. Griffith & Company, located at 2018 Genesee St.
Alternative investments available in the marketplace can include private equity, hedge funds, managed futures, art and antiques, commodities, foreign currencies, digital currencies, and real estate.
While traditionally these types of investments were only available to the wealthy, economic changes over the past several years have opened more opportunity up to retail investors, Griffith notes.
His firm has been offering alternative-investment opportunities — such as real estate, foreign currencies, gold, and oil wells — to clients for years, but Griffith has noticed a definite uptick in interest lately. “It’s an interesting trend I see in the markets,” he notes.
The 2012 Jumpstart Our Business Startups (JOBS) Act opened the door for many to alternative investments by loosening Securities & Exchange Commission regulations on small businesses. One of the most common investment opportunities that came out of the JOBS Act is crowdfunding — think Kickstarter campaigns and mini-IPO offerings. Those options allowed non-accredited investors — those earning less than $200,000 annually and with a net worth less than $1 million — to jump at those opportunities.
There are a number of benefits to such investments, Griffith says, and investors should pick options that best match their goals.
“It depends on what you’re looking for,” Griffith says. An income-based option might be a good choice for those close to retirement age. Other options might come with some big tax breaks. “There are even some that partially give you your principal back,” he adds.
Alternative investments often do not follow market trends, Griffith says, often producing positive returns when the market is down. This makes them a useful way to diversify a portfolio.
Of course, with any pros, come cons, he says. One drawback of alternative investments is that they tend to be illiquid compared to conventional investments, meaning there could be a required lockup period before investors can withdraw their money. In some cases, the investment, such as a piece of art, could be harder to convert into cash than it would be by selling off shares of stock.
Riskier investments, of course, can bring bigger rewards, but it’s crucial that investors do a full risk versus return matrix, Griffith notes. Due to the more-lax SEC oversight, scams are common with alternative investments, and investors need to be wary.
“With a lot of these investments, what we’re looking for is a good exit plan,” he notes. His firm has a team of lawyers and also subscribes to research vendors to fully vet any alternative-investment option before recommending it to clients.
Founded in 2006, D.K. Griffith & Company currently has more than $100 million in assets under management for more than 300 clients. The firm offers a range of services including business consulting, financial planning, and ongoing investment management. It currently employs four people.