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Private alternative investments refer to investments that are outside the traditional stock and bond markets. In Canada, private alternative investments include real estate, private equity, hedge funds, commodities, and other non-publicly traded assets.
These investments can offer the potential for higher returns than traditional investments, but they also come with higher risks and more limited liquidity. Private alternative investments are often only available to accredited investors, who meet certain income and net worth requirements, and are able to meet the higher minimum investment amounts required for these types of investments.
Private alternative investments can be an important component of a diversified investment portfolio, but it is important to understand the risks involved and to carefully consider your investment goals and risk tolerance before investing. Consulting with a financial advisor can help you determine if private alternative investments are appropriate for your situation.
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Private alternative investments have the potential to generate higher returns compared to traditional investments such as stocks and bonds, due to their unique characteristics and the types of assets they invest in.
Private alternative investments can offer a different type of exposure to the market and can help diversify an investment portfolio. By spreading investments across different asset classes, you can potentially reduce your overall portfolio risk.
Private alternative investments can provide access to new investment opportunities that may not be available through traditional investment channels, such as investing in private companies or real estate projects.
Some private alternative investments, such as real estate, may offer tax benefits that can help reduce an individual's overall tax liability.
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Private alternative investments are typically intended for accredited investors in Canada, who meet certain income and net worth requirements. Accredited investors are defined by the Canadian Securities Administrators (CSA) as individuals who meet one of the following criteria.
These requirements are in place to ensure that investors have the financial sophistication and resources to understand the risks involved in private alternative investments.
Private alternative investments may not be suitable for all investors, and it is important to carefully consider your investment goals, risk tolerance, and financial situation before investing. Consulting with a financial advisor can help you determine if private alternative investments are appropriate for your situation.
There are several key differences between private investments and public securities.
Unlike public securities, which are traded every business day and marked-to-market every minute.
Alternative investments and private investments:
1. Dampen overall portfolio volatility as they are not marked-to-market daily
2. May have high long-term growth potential.
On the public markets, public companies are liquid, which means you can buy and sell them daily. Liquidity comes at a significant premium, which investors may not realize.
Privatized businesses aren't as liquid as publicly traded companies and can take a long time to sell. Due to this, a liquidity discount is commonly applied to their valuation, meaning you can purchase a private company with essentially the same qualitative and quantitative characteristics as a public company for a 20-30% discount.
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Mitch McLean is an Ottawa based financial and private alternative investment advisor offering financial planning services across the entire province of Ontario including Ottawa, Toronto , Mississauga , Brampton , Hamilton, Markham, Vaughan and Kitchener .
If you are interested in scheduling a call with Mitch to discuss your financial planning and private alternative investment needs, then simply contact him below and please feel free to connect on LinkedIn and Twitter too!
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Private alternative investments refer to investment options outside of traditional stocks, bonds, and cash. These may include real estate, hedge funds, private equity, commodities, and other less conventional assets.
Individuals with a higher risk tolerance who are looking for diversification and potentially higher returns may consider adding private alternative investments to their portfolio. However, these investment types often require a more significant capital commitment and are less liquid than traditional investments.
Private alternative investments are generally less liquid, have higher fees, and may require a longer investment horizon compared to traditional investments like stocks and bonds. They also often require a higher minimum investment and offer the potential for higher returns.
Yes, private alternative investments are regulated by various provincial and federal agencies, including the Ontario Securities Commission (OSC) and the Investment Industry Regulatory Organization of Canada (IIROC). However, they are generally less regulated than traditional investment vehicles.
A qualified financial advisor can assess your financial goals, risk tolerance, and investment timeline to determine if private alternative investments are suitable for you. They can also help you navigate the complexities and risks associated with these types of investments.
The tax treatment of private alternative investments can be complex and varies by type of investment and its structure. It's advisable to consult a tax professional to understand the implications fully.
Understanding the risks involves thorough due diligence, including assessing the management team, historical performance, and market conditions. A financial advisor with experience in private alternatives can help you evaluate these risks.
Yes, it's possible to include private alternatives in a retirement portfolio, but due diligence is essential, given the higher risk and longer investment horizons often associated with these types of investments.