Why we believe you need to have alternative investments in your portfolio
Years ago, managing your investment portfolio was pretty simple: Invest in 60% stocks, 40% bonds, and rebalance your assets once a year. We believe this traditional asset allocation model is outdated and no longer offers the protection to your retirement savings that it once did.
High net worth investors and pension funds are increasingly moving away from this model for investing. Given the historically low-interest-rate environment, allocating too much of your investments to fixed-income or bonds can result in a very low yielding strategy. Compounding this issue, the average life expectancy is rising thanks to modern medicine, meaning the risk of outliving your retirement savings has increased on both fronts…lower yields and longer lives.
The solution is not to put 100% of your savings into volatile stocks as market swings can lead to a lot of sleepless nights. When it comes to wealthy families avoiding significant market corrections is essential to have the mettle to hold on to good long term investments. This leaves investors looking for solutions to reduce fluctuations and provide steady returns.
Our Philosophy on Asset Allocation
We believe it is important to always monitor where the “smart money” is going, and pensions with successful records are a great place to start. One of the most admired institutional investment track records in the world comes from the Yale endowment fund. Yale’s investment committee is made up of Nobel Prize winners in economics and finance who are responsible for developing cutting edge investment strategies. Yale’s current focus is to decrease the amount of their investments in fixed income/bonds as well as stocks in favour of alternative or private investments.
Examples of Alternative Investments we currently use in client accounts include:
- Absolute Return – market neutral hedge fund strategies delivering low volatility returns, independent of overall market moves
- Mortgages – to preserve capital and provide a consistent high rate of interest income through a diversified portfolio of commercial mortgages
- Private Credit Lending – actively managed portfolios of private loans to companies delivering consistent strong returns with minimal volatility
- Private Equity – a diversified strategy with a focus of investing in private companies unavailable to most investors
- Private Real Estate – hard assets with a focus on income as well as capital appreciation in both multi-residential and commercial real estate
Investors should always be properly diversified. While balanced portfolios used to mean a mix of cash, bonds, stocks and mutual funds, if one follows the smart money, a properly balanced strategy will include a lot more. Investors who include alternative or private investments in their own portfolios can potentially obtain higher risk adjusted returns than what most traditional investments will offer.