What Are Alternative Investments and Should They be a Part of My Portfolio?

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Asset allocation is identified as the process of having different types of investments in your plan with different percentages for each type. Alternative investments, which are used to help provide a counter-balance to more traditional holdings, is a loose term used to describe non-traditional assets such as artwork, wine, commodities, venture capital, private equity, real estate, etc. Strategies involving the use of hedging may also be employed help preserve and attempt to grow returns.

The purpose of using alternative assets is to help diversify, preserve wealth and potentially improve overall returns. In assembling a strategy, it is usually recommended to find investment tools that react differently to the market, so that if part of a portfolio is going down, then another part may hold its value or maybe even increase in value.

The individual investor has more access than ever to markets that might otherwise have been overlooked in years past. Partnering with a professional to help sort through all the options is important, so as to utilize a wide variety of alternative investments best suited to help lower the overall risk of a particular portfolio.

If you have been a buy and hold investor, but are seeking to provide another piece to your portfolio, then taking a look at alternative investments may well be the answer to your research.

Alternative investments involve specific risks that may be greater than those associated with traditional investments and may be offered only to clients who meet specific suitability requirements, including minimum net worth tests. Investors should understand that investing in strategies that are non-correlated to the stock and bond markets are not without risk. There can be no assurance that alternative investments will be profitable and will even outperform asset classes correlated to the stock and bond markets. These strategies are not suitable for all investors. Investors should be aware that alternative investments may be subject to certain fees, create taxable events, may be illiquid as well as the fact that no secondary market may exist.

 

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