How ‘alternatives’ can fit into a portfolio

Article Excerpt

“Alternative investments” is the collective name for a diverse group of assets that do not fall into one of the traditional asset classes of stocks or bonds. Alternative assets can include real estate, private equity investments, commodities, infrastructure, hedge funds, collectibles, and even art and wine. One of the main selling points alternative investment providers use is their belief they provide valuable diversification and at the same time offer the potential for increased returns. Alternative assets have a low correlation with the traditional asset classes. This simply suggests that alternative assets can diversify a portfolio such that it can make positive returns during periods of market decline for stocks or bonds. On the downside, alternative asset managers typically charge high fees for their services and often a share of the funds’ returns. Investors, therefore, have to hope that the investment manager will add enough value to make up for the high fees. The performance and risks of alternative assets The table below indicates the performance…

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