How Alternative Investments Can Safeguard Your Portfolio Today!

Introduction Warren Buffett once famously said, "Diversification is protection against ignorance." While I'm sure we all strive to make informed decisions, the investing world is full of uncertainty. Given the evolving financial landscape, even the traditional 60/40 model of investing—60% stocks and 40% bonds—may be showing its age.

As an investment advisor focusing on the Canadian market, I can't stress enough the benefits of broadening one's investment horizons, especially when considering why your portfolio may need alternative investments.

In this article, I'll dive into why and how Canadian investors may benefit from adding alternative investments to diversify their portfolios and potentially enhance returns.

1. What Are Alternative Investments? Alternative investments are essentially financial assets that do not fall into the conventional investment categories of stocks, bonds, or cash. These can include real estate, private equity, private credit, commodities, and even collectibles like art or rare stamps. A Brief History If we rewind the clock to the 20th century, alternative investments were mostly a playground for the wealthy and institutional investors. However, in recent times, they have become increasingly accessible to individual investors, thanks to various investment vehicles like REITs (Real Estate Investment Trusts) and ETFs (Exchange Traded Funds) that focus on commodities or other alternative assets.

2. The Limitations of Traditional Investments Stock and bond markets can be volatile particularly in 2022 when stocks and bonds significantly decreased in value. This underscores why your portfolio may need

alternative investments.

3. The Case for Alternative Investments What makes alternative investments particularly appealing is their low correlation with traditional stock and bond markets. This factor alone should compel you to consider why your portfolio needs alternative investments now.

4. Types of Alternative Investments Suited for Canadians Private Equity Given Canada's growing sectors like technology and healthcare, private equity offers some enticing opportunities. But it provides significant liquidity risk. Private equity is ownership or interest in companies that are not publicly listed. Private equity comes from firms that purchase stakes in private companies or acquire control of public companies with plans to take them private and delist them from stock exchanges.

Private Credit

Private credit funds; pool investors' capital to lend to private companies, offering a higher yield compared to traditional bonds while diversifying credit risk. They provide exposure to debt instruments that used to be inaccessible to retail investors.

Commodities Canada is rich in natural resources, from metals to agricultural goods. Commodities thus offer another avenue for diversification. Infrastructure Public-private partnerships in infrastructure projects can be a lower-risk way to diversify your portfolio while contributing to the country's development. This is possible through private REITs.

5. How to Add Alternative Investments to Your Portfolio

Allocation How much should you invest in alternative assets? While there is no one-size-fits-all answer, a general guideline is to allocate a small percentage of your portfolio towards Alternative investments. This allocation strategy can be a powerful answer to the question of why your portfolio may need alternative investments.

6. Risks and Considerations

Illiquidity One significant downside to many alternative investments is their illiquidity. For instance, if you invest in a private equity fund, you might not be able to quickly sell your stake without a substantial penalty. Some alternative investments do provide liquidity but it depends on the structure of the fund and their profitability. Be very cautious.

Personal Story I recall a scenario where some clients chose to invest in an alternative investment during the market correction in 2022, while the portfolio got affected from the stock exposure, the value of the alternative investment remained stable, helping to offset the other holdings. The portfolio remained stable and decreased in value sightly. As we stayed disciplined with our investment strategy, our stock positions today in creased in value in 2023, so today we have a profitable portfolio that withstand the market volatility in 2022.

Conclusion Alternative investments can offer many benefits, from risk diversification to potentially higher risk adjusted returns. But as with any investment, it's crucial to do your research and understand what you're getting into. So, if you've been wondering why your portfolio needs alternative investments now, the answer lies in these multiple benefits. Reach out to me! If you're looking to diversify your investment portfolio with alternative assets, reach out to me at gkaraiskos@argosynet.ca or direct message me on any platform to explore options that align with your financial goals and risk tolerance. Happy investing!

Georgios Karaiskos

Disclaimer:  The views expressed do not necessarily reflect the opinion of Argosy Securities Inc. Neither Argosy nor its affiliates accepts any liability whatsoever for any loss arising from any use of this report or its contents. This does not constitute an offer or solicitation to buy or sell any of the securities mentioned. The information contained herein may not apply to all types of investors. Please consult a professional before making an investment decision.

 Forward Looking statements: Certain information set forth in this material contains forward-looking information. Forward Looking Information is subject to risks and uncertainties and cannot be relied upon as guarantees of future performance. The information contained herein is based upon what the writer believes to be reasonable; the writer cannot assure that actual results will be consistent. Undue reliance should not be placed on them.Historical analysis does not reflect future returns. Investing involves risk.