Portfolio Diversification Benefits
The typical investment portfolio is made up of stocks and bonds, sometimes packaged in mutual funds or segregated funds. Although these traditional investments are important, during the recent financial crisis, we saw that they started to perform very similarly (negatively) together. When investments consistently move in the same direction, they can increase the risk to investors who are drawing on those funds. High correlation may also increase volatility in one’s portfolio.
According to the conventional wisdom of Modern Portfolio Theory by Harry Markowitz, diversification is essential. Investments that have low or negative correlations against the other holdings in the portfolio should generally perform best over time when combined. Alternative investments have historically** been shown to display a low or negative correlation with other investments (Walker, 2014).* Therefore, by utilizing alternative investments, an investor has the potential to enhance their returns in exchange for the additional risk taken.
We understand that these concepts may not be intuitive for many investors. If you have questions we encourage you to contact one of our Private Wealth Advisors.
Why Invest in Private Companies?
Alternative investments can be public or private, though most are categorized as private. At Raintree Financial Solutions, we specialize in private investments that are not traded on a public stock exchange. Many small and medium-sized enterprises (SMEs), and funds that list on a public exchange do not necessarily receive the full benefit of their listing which can result in a lack of liquidity, increased trading volatility and extraordinary costs to maintain reporting and other listing standards.
By staying private in the capital accumulation stage, a private company can focus more attention on management and long-term value creation, rather than stock promotion and quarterly bonuses. Most Canadians are not business owners, and therefore don’t get to participate financially in the SME economic engine. That is what distinguishes Raintree – we allow all Canadians to participate in this segment of the economy, in a meaningful way.
* Your experience, financial circumstances, time horizon, level of risk tolerance, and investment objectives may be materially different than institutional investors who have implemented these strategies.
** Historical data is not indicative of the future performance of an asset. Alternative investment correlations represent past performance, and there is no guarantee that future correlations between the alternatives presented will be the same.
By staying private in the capital accumulation stage, a private company can focus more attention on management and long-term value creation rather than stock promotion and quarterly targets.
Our team of Executives are experienced in the private capital market and are focused on changing the way Canadians think about investing their money.
FIND YOUR ADVISOR
Raintree Financial Solutions understands the value of strong relationships and works to cultivate them in all areas of our business. Our network of Private Wealth Advisors spans from British Columbia to Quebec.
The Head Office staff, Corporate Finance division, and Private Wealth Advisors of Raintree Financial Solutions are available to assist you and answer any questions you may have. Contact us today for more information on how we can help shape your financial future.