Merchant Cash Advances Are The Best Kept Secret in Alternative Asset Investing – Here’s How You Can Benefit
With the crash of the 60/40 portfolio continuing to make headlines, smart investors are looking to the alternatives market for robust, low-correlation assets.
Merchant cash advances offer unique benefits within the alternative assets space; here’s how you can reap the rewards.
Merchant Cash Advances offer low correlation
On an after-inflation basis, 2022 is now the worst year ever for a standard 60/40 stock/bond portfolio.
In this environment it is more essential than ever to select a diversified range of low-correlation alternative assets.
Merchant cash advances provide a great way to diversify into low-correlation alternatives by giving you access to future business receivables.
An MCA is not a loan, but rather a cash advance used to ‘purchase’ a share of the future income of a business.
The performance of small to medium high-street businesses can offer a valuable addition to a strategically selected portfolio of low-correlation assets, untethered from the performance of stocks and bonds.
Merchant Cash Advances give you diversification
Nobel Prize winning economist Harry Markowitz called diversification “the only free lunch in finance.”
Merchant cash advances can bring extra plates to this free lunch thanks to the large range of different industries and businesses that use them.
The diversity in the spread of small businesses that take on cash advances means enhanced diversity in the spread of your investment.
This means that as well as being an useful alternative asset class in their own right, you can further diversify your holdings by spreading the number and type of merchant cash advances you hold.
An Example of MCA Diversity Investing
For example, say you have $100,000 to invest. You can put that money to work by allocating $1,000 to 100 different high street businesses. These may include nail salons, dentists, freight companies, sneaker stores, etc.
This distribution can assist you in locking in a set level of value when other elements of your portfolio falter, or can expose you to outliers that may surge in value.
As an additional bonus, by restricting your individual deal exposure to 1% of your total capital, you can create a well-diversified portfolio with at least 100 unique MCA investments.
Spreading investment over 100 transactions minimizes the impact of a single default on a portfolio tenfold when compared to a portfolio of only ten businesses with $10,000 invested in each.
A Superb Alternative Asset
The more low-correlation assets you include, the more diversified your portfolio can be. In both low-correlation and diversification terms, merchant cash advance financing establishes a distinct value offering.
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