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Date: September 5, 2017
Category: Alternative Investments

Alternatives and Your Portfolio: Staying Off the Volatility Rollercoaster

Alternative investment low volatility

Rollercoasters can be a lot of fun, but not when it’s your money that’s rising and falling. In fact, the volatility rollercoaster can be a major source of stress as you watch the value of your portfolio grow and shrink with the whims of the market.

Typically, a lot of portfolio volatility is driven by equities. Traded equities are liquid investments that may experience ups and downs due to changes in sentiment or external events. Equities offer the potential for capital growth, which is good, but because they’re traded, they also tend to experience price volatility.

You can try to reduce portfolio volatility by adding bonds. However, most don’t offer a lot of growth potential. And today, with interest rates normalizing after a long period of rock-bottom levels, bond prices are likely to come under pressure.1

Alternative investments are typically not regularly traded, which can help insulate them from the ups and downs of the market. In fact, certain alternative investments may offer a way for you to combat portfolio volatility while maintaining your portfolio’s growth potential. For example, investments in commercial real estate are often made through investment vehicles that offer only limited liquidity or a multi-year investment horizon. The long-term, non-traded nature of this kind of investment makes it a less volatile option, while the underlying assets may still deliver growth and income potential from rents and capital appreciation.

Low volatility portfolio with alternative investments
* Past performance is no guarantee of future results.

The Bottom Line:

An allocation to alternatives may help lower overall portfolio volatility. And that means a smoother ride for your money.

1 Securities and Exchange Commission. Investor Bulletin: Interest Rate Risk – When Interest Rates Go Up, Prices of Fixed-Rate Bonds Fall. 6/13

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