There are few finer pleasures than watching your portfolio grow, knowing that your money is hard at work making more money. But looking ahead, do you ever worry about future capital growth?
We’re still riding an eight-year bull market, and even optimistic experts note that some stocks look a little overvalued.1 And even if there is no correction in the future, there’s certainly open discussion about how much higher stocks can go.
At the same time, interest rates are starting to normalize after a decade of rock-bottom levels, which has the potential to push down bond prices. This could have a knock-on effect on your portfolio.
One potential way to help find future growth is through an allocation to alternative investments. Alternatives include long-term investments in hard assets like real estate or infrastructure, which historically have become more valuable over time.
Alternatives are also generally less liquid than bonds and equities, which means that they may offer a liquidity premium.2 Typically, investors in illiquid assets pay less for a given cash flow than they would if they were investing in a liquid asset. So, for a given dollar investment, an investor in illiquid assets usually earns a higher return, which is the liquidity premium. This means a liquidity premium may help boost your total returns over time.
As you can see, the portfolio with alternatives experienced higher total returns.
* Past performance is no guarantee of future results.