Everyone dreams of sipping drinks on a beach while their money works for them, but we’ve been taught only stock-market millionaires can achieve it. Especially with interest rates near zero, passive income seems elusive with many retail investors actively on the ‘hunt for yield’.” However, according to investment platform Yieldstreet, savvy retail investors can generate passive income by investing in collateral-backed alternatives with low minimums and little stock correlation.
CEO and co-founder Milind Mehere asserts that “In order for consumers to move to financial security and financial independence, they should be given access to the same products financial institutions have. This is about creating the most wealth out of people’s money, irrespective of their net worth,” he says.
For Mehere, the democratization of alternative investments in industries like shipping, real estate, legal finance, and commercial loans, should not only be exclusive to institutional investors and the already wealthy.
Chris Sugden, former managing partner at Edison Partners asserts that technology can create access and reduce fees on these types of investments, “as lower fees can be passed on to investors to allow them to achieve a higher return.”
Alternative investment platforms
One approach to generating passive income is the use of alternative investment platforms. Fintech companies connect people to income-generating investment opportunities that are usually backed by collateral and offer a wide range of assets.
Art, finance, real estate, commercial finance, and legal finance, have long been touted as solid return generators, but have always been kept away from retail investors. They are known for generating yields in the range of 7% to 15% based on the investment prospect.
In the case of Yieldstreet, the company has returned up to $1 billion in principal and interest payments to its investors since its inception in 2015.
The “mutualization” of alternative investment has lured a wide range of investors into a hugely diversified portfolio. This is evident in the fresh abundance of liquid alternative funds with lower fees that do not require high minimum investments.
Passive income in volatile times
Although diversification is essential for any investment strategy, the variety of assets in alternative investments – driven by different macroeconomic factors – can assure flowing passive income during volatile times. Ensuring returns even when the stock market performs poorly is one of the most difficult aspects of achieving passive income.
According to Russ Zalatimo, Managing Partner at HUDSONPOINT capital, the diversified income potential in alternative investments “may provide a higher yield or cash distribution than typical assets, such as bonds or a savings account.” Further, a strategic mixture of assets can increase a portfolio’s return while lowering the blended level of risk.
Retail investors should be looking towards alternative investments following COVID-19 since the downward adjustment facilitates transactions in private markets at more attractive prices.