Financial Advisors Find Comfort in Alternative Investments
Financial advisors have always suggested diversifying your portfolio. Recently, however, they have increased their push for alternative investments. These complement traditional investments, like stocks and bonds, and further improve portfolio diversification.
The Push Toward Alternative Investments
The following insights from advisors provide a better idea of the push toward alternative investments.
Insight from Thomas Balcom (1650 Wealth Management)
Growing economic uncertainty and volatility are bringing diversification to the minds of nearly all investors. Inflation is over 8%. There are geopolitical concerns. There is also a recent inversion of the yield curve. This combination makes it no longer a question of diversification but more a question of how much. This idea comes from Thomas Balcom, the found of 1650 Wealth Management. His clients’ portfolios consist of more than half of them coming from alternative strategies. This puts him on the more extreme end of this balance.
But there is a definite trend in financial advisors recommending clients to diversify their portfolios, and this is happening across the board. This movement pulls investors away from long-only traditional bond and stock exposure.
Insight from Keith Singer (Singer Wealth)
Singer Wealth’s founder, Keith Singer, also encourages his clients to increase their alternative strategy exposure. Singer explains that strategies that are less liquid make it less likely for investors to resort to panic selling. This helps to stabilize investments across all portfolios. You can get better returns and are less volatile when you lose some of the liquidity. Singer cites that his clients maintain portfolios with 20-30% alternative investments.
Insight from Clearwater Analytics
Clearwater Analytics also recently reported on the trend with alternatives. They surveyed more than 100 investment managers and institutional-level investors. The most popular alternative strategies cited are private equity, private credit, and real estate. Together, these make up about 70% of the alternative funds allocated.
When questioned about why alternatives are so appealing, managers and institutional investors alike cited diversification. This is followed by yields and returns.
Reasons for Alternative Investments
The traditional pillars of the investment portfolio are cash, bonds, and stocks. But in unstable economies, they prove tenuous at best. When inflation is a factor, cash yields are negative, and bonds are impacted by fear of interest rates. Obtaining stocks has historically been pricey. To help investors reach their goals, advisors are turning to private equity and real estate.
With the uncertain economy, high inflation, and geopolitical concerns, advisors suggest more diversification through alternative investments. Alternative investments also tend to increase yields and returns.