Over the last decade, many investors discovered a traditional 60/40 allocation between stocks and bonds was insufficient and did not provide adequate downside protection for their portfolios.
A traditional investment portfolio typically consists of stocks, bonds and cash, while an increasing number of allocation models include these asset classes plus the addition of alternative investments. The term alternative investments typically refers to strategies that may include commercial real estate, private equity, private debt, hedge funds, commodities, managed futures, infrastructure and energy investments.
Once reserved for large institutional investors and high-net-worth individuals, alternative investments have evolved as a fundamental portfolio allocation and diversification strategy for retail investors. Alternative investments are designed to provide portfolios exposure to different risks and mix non-correlated asset classes. This approach to investing may help generate greater returns, reduce portfolio volatility and protect against inflation.
Utilizing alternative investments involves various risks including but not limited to loss of principal, limited liquidity and lack of price transparency. Diversification does not eliminate risk or assure better performance.