In today’s economic climate, investors are searching for something that will reduce their portfolio’s overall risk without giving up rate of return and the solution is alternative investments. An alternative investment in its simplest definition is an investment product other than traditional investments such as stocks, bonds, and cash. This could include personal tangible assets such as art, coins or other collectibles, but also may include financial assets such as commodities, real estate investment trusts, oil and gas partnerships, managed futures, hedge funds, structured products, etc. Since the term “alternative investment” is a relatively loose one, the list goes on and on…
Alternative investing has proven to reduce a portfolios overall risk by adding true diversification. Most alternative investments have low a correlation with traditional assets such as stocks and bonds. This means that whether the stock market is going up or down has minimal bearing on the alternative investments performance. However, not all characteristics of alternative investments are positive ones. They tend to be for more sophisticated investors because they may have limited historical data, might be difficult to value, could be rather illiquid, and sometimes the costs of buying or selling them are high. This is why it is highly advisable to sit down with a financial planner or wealth manager to discuss all the investment alternatives and see which type of investment fits into your financial picture.
There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not ensure again market risk.
At Clay Northam Wealth Management we discuss the pros and cons of complex alternative investments with our clients to determine if any of them may be a proper fit in their financial planning. Servicing all of Southern California, we have 2 convenient offices located in the Los Angeles and Orange County. Please to not hesitate to contact our offices to see how we can be of value to you.