From the investment team at Precedence Capital - Harbourfront Wealth Management.
The most sophisticated investors in the world are allocating more of their assets to Alternative Investments due to chronically low bond yields, extreme central bank intervention, and the threat of overheated stock valuations.
They believe that Alternative Investments will give them a better chance of achieving sufficiently higher returns to meet future obligations while protecting against excessive downside risk.
Goodbye Traditional 60%/40% Portfolio – High-interest rates during the 80’s and 90’s supported the case of the “balanced” portfolio. Today, volatile equity markets coupled with increasing interest rates and low return bonds have created headwinds for the investment community.
Barrons, JP Morgan, and Bank of America all say your traditional 60/40 retirement portfolio is dead. In fact, JP Morgan says your 60% equity and 40% fixed income portfolio will only be expected to generate 3.2% annually going forward. For the majority of Canadians, 3.2% after inflation and taxes simply will not work!
Hello New Pension Fund Style 60% / 40% Portfolio – At Harbourfront, we believe an asset mix (as shown here) 40% Tactical Equities, 60% Alternatives.
Allocation and Benefits
Diversification – Different asset classes with different investment/risk profiles results in lower risk when combined in a portfolio.
Low Correlation – With the recent invention of ETF’s we’ve seen a big uptick in Fixed Income & Equity correlation, alternatives have low to zero correlation with equity markets and traditional fixed income options, creating a more efficient portfolio.
Reduced Drawdowns – Uncorrelated assets will perform differently at different times. Alternatives perform more consistently with lower volatility, protecting portfolios from large drawdowns or losses.
Risk-Adjusted Returns – With lower volatility than fixed income and equity, but high-income streams, alternatives provide better risk-adjusted returns.
Investor Satisfaction – Lower volatility, reduced drawdowns, and more consistent income streams create a happier, more satisfied client.
The asset classes/companies featured in this article are for illustration purpose only, this should not be viewed as a solicitation of buy or sell. Always talk to a professional before investing to know if the product is right for you. Past performance does not necessarily predict future results, each asset class has its own risks.
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