Smart Money: Diversification strategies for today’s market uncertainty

As the market fluctuates and has left many Nevadans and others uncertain about investment strategies, investors are seeking alternate ways to diversify and are exploring new moves in the investment world. This has been spurred by many things, including fluctuating interest rates and worries over inflation.

The current environment has made ‘diversification’ a top priority for portfolios, and this means putting funds into new places, not just stocks and bonds. While rising interest rates initially improved returns on cash and bonds, many investors worry about inflation affecting purchasing power over time. Also, equity market volatility has made it challenging to rely solely on stock appreciation to reach long-term financial goals.

Because of this, different types of investments are gaining more traction. These investments vary and can include private credit, real estate, infrastructure, private equity, and specialized income-producing strategies.

While alternative investments are not ideal for every investor and could bring their own unique risks, they can offer characteristics that differ from traditional public markets. While stocks and bonds have been the focus for decades for balanced portfolios, diversification into other areas, like trust deed investments, can offer investors new options to generate income.

For those not familiar with “trust deed” investments, they allow a group of investors to invest in real estate, therefore becoming “a private real estate lender.” These loans to a developer allow individuals or entities to act as the lender when funding is needed, especially when the developer is denied by a bank.

This type of real estate investing is well-liked among many because it does not require you to own or manage any real estate. During and following a project, investors’ funds are generally re-paid directly to them with a higher interest rate and financial gain.

Trust deed investments maintain a level of security that is tied to tangible real estate assets. The loan is secured by a recorded deed of trust against the property. This structure can provide an income stream that is often less correlated with the daily changes in the public stock and bond markets.

Many trust deed opportunities are structured with conservative loan-to-value ratios, creating an equity cushion that can help mitigate risk if property values fluctuate. While all investments carry risks — including borrower default and changes in real estate market conditions — trust deed investments can appeal to investors who value capital preservation, consistent cash flow, and exposure to the real estate sector without having direct property ownership.

Another alternative investment that could be considered is “infrastructure,” which is also gaining in popularity. Assets such as energy facilities, transportation networks, telecommunications systems, and utilities, many times allow for steady cash flows that are less dependent on short-term market changes. Because many infrastructure assets provide essential services, they may somewhat give more stability during unpredictable market conditions.

With diversification, it’s important to discuss options with professionals in the industry. The goal is to not only focus on returns, but also to build resilience. While more individuals are checking into alternative investments during our current economy, it’s important to remember that traditional assets should still be a part of most portfolios.

Stocks can offer long-term growth potential, and bonds can provide income and risk management benefits. Investors should not shy away from traditional markets, but they should understand that alternatives exist when we are faced with varied economic and market conditions.

When thinking of your objectives and meeting your financial goals, remember that a well-diversified portfolio can help to lessen the risk and improve the ability to achieve long-term objectives across various market environments.

Laine Blackmon is Reno branch manager at NV Capital Corp.