Investors in stocks had a hard time earning a positive return in 2022, especially utilizing the outdated 60/40 portfolio. Both the S&P 500 and the FTSE 250 were down more than 15% for the year, and the only thing keeping the FTSE 100 up is its oil and gas stocks.
Cryptocurrency, which was thought to be the future of investing, has done even worse, with bitcoin and Ethereum down 63% and 67%, respectively thanks to the collapse of FTX.
In summary, a lot of investors have found themselves in the red over the last twelve months.
Alternative assets have the potential to provide vital support to an investment portfolio during times of economic instability because they typically offer a low-correlation environment in which to invest your money.
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Alternative assets refer to privately held equity; things like collectible whiskey barrels, real estate, vintage watches, and private credit – like MCAs. A low correlation asset is any asset that is unlikely to track the broader economic performance of the market, and, in this way, it can be extremely useful during economic dips and even during recession.
As a recap, MCAs are a way for small and medium-sized business owners to get cash almost right away, so they don’t have to go to a bank for traditional financing.
MCAs are not a loan, but rather a sale of future income, which means that they are not subject to the same onerous rules and regulations as a conventional bank loan. Most of the time, they are used for working capital, but they can be used for many other things as well.
What low correlation assets mean for your portfolio is that whilst the S&P 500 and the FTSE 250 lost 15% over the year, your alternative assets could stand a better chance of having held or increased their value. Through diversifying your holdings, you can up your chances of protecting the profitability of your investments and bolstering your return.
MCAs bring with them a number of unique benefits not accessible through other alternatives.
An MCA deal can be confirmed, start to finish, in under a week. This is great news for you if you want to start seeing returns towards a financial goal within the short to medium term.
Their repayment time scale also tends to be short-term, usually 3 to 12 months, and investors start receiving their money back almost right away. This is because, instead of being asset-backed like a real estate or art investment, for example, they are asset-based, which means that they will only be paid back when the money from future sales comes in.
Functionally, this means that instead of paying a fixed amount every month as you might do on a bank loan – say, $900 per month, an MCA customer will send payments based on a percentage of credit card sales or some other income stream – say 9% of all future sales for 12 months.
The popularity of MCAs skyrocketed during the pandemic and their market share is likely to grow as merchants seek operating capital to support them through the coming year.
Whilst we don’t want to be all doom and gloom, financial forecasting titans like BlackRock have said that they expect 2023 to be even worse than 2022.
With that in mind, alternative assets are seriously worth considering as RIAs and Accredited Investors look to the year ahead and strategize for their investment approach.
Still not sure where to invest your money? We draw up the pros and cons of MCAs vs. Real Estate vs. Art vs. Crypto here to potentially help investors in their alternative investing journey.
