Tuesday, 2 July 2013

Wise Investors Diversify Portfolios With Alternative Assets

Because many investors still carry damaged portfolios, as a  result of the Global Financial Crisis, they are determined to prepare for continued market volatility and protect their portfolios. This has led to an increasing interest in the utility of alternative investments to assist in the diversification of portfolios and the steady increase of investment returns, even in a market that contains low interest rates. In addition, financial advisers have had an opportunity to help clients understand a large number of options for adding alternative assets to their portfolio. Before investors and clients rush to a mutual fund, exchange-traded fund, managed futures platform or hedge fund, wise investment advisers should carefully assist their clients to evaluate other options such as variable annuities with alternative asset classes and strategies. This is essentially what has been a growing trend within funds, and investment advisers are helping clients reach a more versatile portfolio.

It has been established that precious metals such as gold and silver have been hot alternative investments in recent years, until of course as of very recently. Nevertheless, the “M.E.T.A.L.S” approach used by investment advisers to evaluate an investment in precious metals, can be applied to most any alternative investment offering; especially those in hard assets.

  • The "M" is for minimum, and this is because many alternative investment VAs give investors access to alternative investments for a manageable minimum investment.
  • The "E" is for expenses, because expenses for alternative investment products are relatively low when compared with managed futures platforms and hedge funds, which typically layer a performance fee on gains on top of an asset management fee.
  • The "T" is for taxes, because trades within alternative investment VAs do not create a taxable event. Taxes are assessed only upon distribution.
  • Next is "A" which stands for accreditation, meaning that most clients have to have a certain income or amount of capital available for investment, in hopes that the client will be able to stay on their feet, if something were to go wrong.
  • The "L" stands for liquidity, which is very important for hedge fund managers.
  • Lastly, the "S" stands for spousal protection, meaning that investing in alternative offerings can help surviving spouses maintain financial stability after the owner’s death.

As the growing trend of investing in alternative assets increases, the investment community will continue to see financial advisers urging their clients to review investment options and alternatives, that will allow them to diversify their portfolios and avoid exposing themselves to the unnecessary risks; presented by many traditional investments. As well, this approach encourages investors to branch out and take advantage of some of the other very profitable alternative investment opportunities, that have become available in the market.

1 comment:

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