Glenn D. Kenes: How Alternatives Can Fit Your Portfolio

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The year was difficult for both stock and bond markets.

The state of the markets in 2022, where stocks and bonds saw declines in the first half of the year, may make you think about other investment options. If you’re wondering how to further diversify your portfolio, alternative investments are an option to consider. They include real estate, commodities, hedge funds, private equity and debt, and venture capital. Before we dive in, here’s what you need to know about these unconventional assets. You should also be sure to seek the advice of a trusted financial advisor who can help you assess your risk tolerance, time horizon and whether any alternatives might have a suitable place in your portfolio.

Another type of investment

Alternatives, as their name suggests, are not traditional investments and, if included in a portfolio, should only be a small portion of it (no more than 15%-20% is a rule of thumb, but the appropriate amount may vary) .



Commodities can include natural resources such as crude oil, wheat, corn, and coffee. Transactions generally take place in the futures market, which means investments are more complex than typical securities. Real estate includes publicly traded real estate investment trusts (REITs), which trade on exchanges, or private REITs, which have different investment requirements. Investors can also invest directly in land or property.

Private equity, private debt, hedge funds and venture capital are available to individual investors through professionally managed funds. Until recently, these segments of the market were off-limits to all but the wealthiest investors and institutions. These assets are more accessible today than they were in the past and, like other forms of alternatives, can play a role in your portfolio.



Potential Benefits of Alternatives

The main benefit of including alternatives in your asset mix is ​​the diversification of your portfolio. A well-diversified portfolio can help you generate more consistent investment performance over time. Historically, certain types of alternatives have shown the potential to hedge against the negative impact of periods of weaker performance in equity and bond markets.

In addition, the alternatives can act as a hedge against higher inflation. These types of assets have the potential to keep pace with the rising cost of living.

Potential challenges with alternative investments

Alternative investments are a long-term portfolio position. You need to be certain that you won’t need to liquidate assets sooner to access money committed to alternatives.

Additionally, some alternatives are not subject to the same level of regulatory oversight as other securities. Make sure you understand the nature of the investment you choose and the terms of the offer.

It may not be as easy to determine if a specific investment is truly appropriate without thorough research or professional advice. To this end, discuss with your advisor how the alternatives can be integrated most effectively and which types are best suited to your own portfolio.

Glenn Kenes, CRPC, AIF, is a private wealth advisor and managing director of Barber Kenes Retirement Solutions, a private wealth advisory practice of Ameriprise Financial Services, LLC, in Auburn. He specializes in financial planning and asset management strategies and has been practicing for 26 years. Contact him at: BKRetirementSolutions.com or 530-823-0710, 470 Nevada Street, Ste. 200, Auburn, CA 95603.


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