Alternative Portfolio
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.
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 lower 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.
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.
These investments are associated with a higher expected return, in exchange for amongst other things, illiquidity (lack of ability to sell on a market). Private investments are not for everyone, it’s important to consult an investment advisor before you invest to ensure this is right for you. Contact one of our Private Wealth Advisors.
Disclaimer
* 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.
