Why Allocate to Alternative Investments
The Case for Alternative Investments
Alternative investments provide access to investment opportunities generally not available in a traditional stock/bond portfolio allocation. With enhanced return and income potential, and a wide array of diversified strategies, alternative investments can be a valuable addition to a portfolio. They can also be highly effective when the markets are experiencing greater volatility, higher inflation, and increased correlations in traditional assets.
What Can Alternative Investments Offer?
- ENHANCED RETURN AND INCOME POTENTIAL
- Alternative investments have historically delivered higher returns and income than traditional equity and fixed income investments.
- BROADER DIVERSIFICATION AND LOWER CORRELATION
- Alternative investments span multiple asset classes and investment strategies, helping to dampen volatility, increase diversification, and lower correlation in a portfolio.
- LARGER OPPORTUNITY SET
- Alternative investments offer exposure to an array of unique investment opportunities away from long-only, publicly traded stocks and bonds.
- May help investors achieve long-term investment goals and objectives and serve as an attractive complement to traditional stock/bond allocations.
- Do not represent a single solution, but a diverse set of strategies that can fulfill multiple roles in a client's portfolio.
- Versatile tools for building diversified portfolios.
- Technology and product innovation have made it easier for investors to access these investments.
Key Risk Considerations
Key risk considerations may include, but are not limited to, the following:
- Transparency: Alternative investments may not offer the same level of transparency as traditional
investments, which are required to provide frequent and full disclosures
- Liquidity: Alternative investments should be considered longer term investments. Depending upon
the strategy, investors may be subject to a lockup period which will prevent them from redeeming their
capital for an extended time (e.g., 5-10 years).
- Fees: Alternative investment fees are generally higher than those associated with traditional investments.
- Leverage: Alternative investment strategies may use some form of leverage, which offers the potential
for higher returns, but also increases the downside risk.
- Concentration: Alternative investment strategies may be highly concentrated in a few funds or holdings.
View the PDF below to read more about allocating to alternative investments!