These days, without having much knowledge or experience, there are those who believe themselves to be competent investors. However, knowing how to strategically invest your money, while considering all facets of life – your current situation, and your present and future goals, is not always straightforward. The fact is, making investment decisions can be complex, and for that reason it’s important to work with a financial professional who has the education, training, experience and qualifications to help you achieve your financial goals. Matching investment objectives with asset allocation, and factoring in risk versus performance, is an art form. Similar to a chef, a financial professional must select the right mix of ‘ingredients’ to help minimize risk and work towards maximizing returns.
While there are many ways to stock your portfolio, alternative investments are an interesting option for investors. Though alternative investment vehicles have been around for a long time, it’s in recent years that they have started to gain momentum. In fact, it was only in 2016 that retail investors in Ontario seeking alternative investments could access private capital markets. Here’s a look at what alternative investments are and how they can play a winning role in your portfolio.
Essentially, alternative investments are those asset classes that do not include publicly traded equities (stocks), mutual funds, bonds and term deposits (GICs). Most commonly, alternative investments represent vehicles such as hedge funds, private equity, real estate and commodities, amongst a number of other growing options. With very unique characteristics, alternative investments can bring distinct benefits to your portfolio.
One of the ingredients for having a successful financial portfolio is diversification. If we compare investing to cooking again, it’s like creating a balanced dish. Too much acid in your food and it will taste sour. Too much sugar, and it will be too sweet. To create a harmonious plate, you need to balance out your flavours. Alternative investments can broaden your diversification and bring some balance.
The sheer multitude of alternative investments allows investors to create a broader portfolio. It also presents the opportunity to select from a varying degree of risk and reward. Although some alternative investments can be considered quite risky on their own, they can also provide investors with an enhanced opportunity for return.
Investing without a plan can be risky business. Even popular options like alternative investments, may not be the right option for everyone. At the end of the day, every investment comes with its own set of risks and rewards. However, choosing the right ingredients for your portfolio requires careful thought and consideration. If you’re feeling unsure, talk to a financial professional. They will walk you through your options and find your best recipe for success.
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