Hedge funds or private equity are two examples of alternative investments.

The Covid-19 pandemic is not only making itself felt in our private lives – the increased market volatility is also a challenge for investors. “Classic” diversification instruments, such as high-quality bonds, are also likely to suffer increased volatility with lower expected returns in the future. In a multi-asset class portfolio, adding alternative investments can bring various benefits to help you stay on track with your investment goals.

Diversify your portfolio with alternative investments

By adding strategies that are less dependent on a positive macroeconomic environment, women investors can build more robust portfolios. Alternative investments provide access to investment opportunities that reduce reliance on traditional market drivers and offer new potential returns. With a sufficiently long investment horizon, the risk-adjusted return expectations of a portfolio can be optimized.

Even with alternative investments, it is advisable to combine different strategies to ensure broad diversification and mitigate cluster risks. Read also “Lower investment risks via diversification”.

What are alternative investments and how do they differ from traditional investments?

As the name suggests, these are alternatives to traditional asset classes such as stocks, funds or bonds. Alternative investments often develop in the opposite direction to conventional investments, as they are far less influenced by interest rate developments and equity markets. Alternative investments usually require a longer investment horizon, as they are sometimes more illiquid or tie up capital for several years. Alternative investments include:

  • hedge funds, which can potentially benefit from both rising and falling prices, depending on the strategy
  • private equity – a form of investment where you invest directly in unlisted companies that have growth potential
  • commodities such as gold, oil or wheat
  • real estate, i.e., houses, apartments, as well as commercial and office space

The main alternative investments briefly explained

When alternative investments are worthwhile

Alternative investments are a suitable means of further diversifying your portfolio and spreading risks, as some are less correlated with traditional asset classes. Since these types of investments are often less liquid, investors can also achieve an illiquidity premium.

Alternative investments are usually associated with higher risk and a higher capital investment, and are thus generally aimed at experienced, well-informed investors. However, they can still be a promising addition to your investment portfolio. As part of a portfolio of an asset management mandate, for example, they are also a relatively straightforward option for private investors.

Are alternative investments a good fit for your investment strategy and portfolio? We will be happy to help you answer this question in a meeting.

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