Portfolio Diversification Benefits

The typical investment portfolio is made up of stocks and bonds, which may be packaged in mutual funds or segregated funds. Although these investments are important, what we saw during the recent financial crisis was that they started to perform very similarly (negatively) together. When investments consistently move in the same direction, they can enhance 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 (a hypothesis put forth by Harry Markowitz in his paper “Portfolio Selection” published in 1952 by the Journal of Finance), diversification is very important. To create a superior portfolio, investments that have low or negative correlations against the other holdings in the portfolio will perform best over time when combined. Alternative investments have been shown to display low or negative correlation with other investments (Stephen Todd Walker, Understanding Alternative Investments (Palgrave Macmillan, 2014) pg. 18). Therefore, by utilizing our Core + Explore™ investment philosophy, an investor has the potential to enhance their returns for each increment of risk taken.

We understand that these concepts may not be intuitive for many investors. If you have questions we encourage you to have a discussion with 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.