Designing a goals-based portfolio
Thoughtful portfolio construction requires a focus on an investor’s goals and financial risk tolerance. By taking these considerations into account, investors can make more-informed decisions regarding the role of alternatives in their portfolios.
Income
Investors have varying needs for dependable current income, whether to meet monthly expenses or achieve long-term financial goals. Especially during periods of low interest rates, some alternatives may offer higher yields than traditional investments.
Diversification
A diversified investment portfolio that includes stocks, bonds and alternatives can help smooth the impact of market volatility and may generate higher returns relative to their levels of risk over time. Many alternative investments tend to have lower correlations to traditional investments. As a result, they can potentially reduce overall portfolio volatility and help mitigate extreme swings in investor sentiment that too often lead to poor investment decisions.
Growth
Alternative investments have the potential to improve the risk and return profile of a portfolio. Investing in alternatives can provide access to a broader set of investments and strategies beyond traditional investments, which may help grow an investor’s total return.