How to Reduce Risk When Investing in Alts: A Brief Guide

September 25, 2023

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Do you want to understand how to reduce risk with alts? Evaluate your own risk appetites and then build your portfolio accordingly.

You want to understand your own risk appetites and then build your portfolio accordingly. This process has been complicated in recent years because traditional investment landscapes have been transforming.

With stock markets showing volatility and traditional banking avenues not meeting investors’ needs, alternative investments have been growing in popularity.

Understanding the risks associated with alts can be tricky for the same reasons that make them popular: they are extremely diverse and can behave in very different ways to the stock market.

Among these alternatives, the Merchant Cash Advance (MCA) has emerged as a frontrunner, offering a blend of flexibility and potential profitability.

At Supervest, we are at the forefront of the alternative asset evolution, pioneering a way for investors to explore the potential benefits of MCAs with a strong emphasis on risk mitigation.

This guide will shed light on how alternative assets in combination with prudent investment strategies can help you reduce risk when investing.

Understanding Investment Risks: The Basics

When you are working out what your own risk appetite is and how you want to plan your portfolio, here are the main types of risks you want to be thinking about:

  • Market Risk: This is the risk of investments declining in value because of economic events affecting the entire market. Things like major political events or pandemics affecting stock prices.
  • Liquidity Risk: The risk that you won’t be able to sell your investment when you wish without affecting its price. Traditional real estate often has higher liquidity risks compared to, say, stocks.
  • Concentration Risk: Putting all your eggs in one basket. Investing too much in a single asset or type of asset can expose you to higher volatility and more risk.
Graphic on how to reduce risk when investing showing a line graph with the title ‘revenue’ how to reduce risk with alts
Welcome to our brief guide on how to reduce risks in your investment strategy. Photo by Monstera.

How Do MCAs Fit into the Risk Landscape?

Merchant Cash Advances offer a different risk-reward balance. Instead of lending money, you are buying a slice of future business income.

This can give you some flexibility because it means that the return is tied to a business’s daily sales. You can start earning a return from day one and begin benefitting from the power of compound velocity by reinvesting your returns in more MCA deals.

At Supervest, we enhance this process by integrating strong risk assessment and iron-clad due diligence procedures. This attention to detail means that MCAs are extended to businesses with proven track records, which helps to reduce risk to our investors.

Graphic for how to reduce risk when investing showing a digital scroll with dollar coins around it how to reduce risk with alts
MCAs let you buy a portion of future business income. Photo by crazy motions.

Alt text: Graphic for how to reduce risk when investing showing a digital scroll with dollar coins around it

Caption: MCAs let you buy a portion of future business income. Photo by crazy motions.

Diversification for Risk Reduction

Diversification isn’t just about having different types of investments, but about ensuring those investments react differently to the same economic event. This way, even if one sector or asset class is underperforming, others might be doing well, which can offset potential losses.

MCAs are what we know best so that is the example we will use. Unlike traditional stocks, the performance of MCAs is more closely tied to individual business sales than broader market forces, making them a unique diversification option.

Benefits of Diversification:

  • Reduces volatility: A well-diversified portfolio can help smooth out the ups and downs of your investment journey. With MCAs, you can invest in different industries, different locations, and different individual businesses – all in one.
  • Potentially higher returns: With investments spread out, you have multiple avenues for growth.

By diversifying investments and including MCAs in your portfolio, you can mitigate some traditional risks associated with market volatility. This diversification is one of the prime strategies on how to reduce risk with alts.

Navigating Investment with Confidence

So, how to reduce risk with alts? Understanding and managing risk isn’t just an option—it’s a necessity. Every step taken to safeguard your investments can lead to a more secure financial future and peace of mind. Alternative assets are worth considering as part of your risk reduction strategy.

Consider that, by integrating MCAs into your portfolio, you not only tap into an exciting alternative asset class but you can also fortify your portfolio against volatile market conditions.

You can have a look at our 12-month note here and our 24-month note here.

Want to chat with someone from our team of MCA experts or request a demo? You can do that here.

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