Lesson type: Understanding diversification

Looking for diversity

As traditional asset classes start to lose value, advisers must turn to diversification and alternative assets to stabilise performance in client portfolios

The two final episodes of the Investment Series 2 are focused on Ross Bark, a Gen X investor who is looking for further diversification in his investment portfolio due to his heavy weighting towards property. We now outline for you a brief overview of Diversified or Alternative Investments and how they generally operate within a client’s portfolio.

Investors may consider including some ‘alternative’ investments in their portfolio in order to provide diversification (or points of difference) from traditional assets, such as equities and fixed income.

We categorise some investments as ‘alternative’ because they tend to perform quite differently to, or contrary to, how mainstream assets are performing. For example, when traditional assets are performing poorly and declining in value, ‘alternative’ investments can perform more strongly and in some cases, even deliver positive returns.

Conversely, ‘alternative’ investments may not do as well when traditional assets are performing well. As we know, all asset classes and investments will experience positives and negatives and therefore, ‘alternative’ investments can play a useful role in diversifying or spreading the return and risk within an investor’s portfolio.

In order to produce an investment that delivers outcomes that are quite different to traditional assets, ‘alternative’ investment managers will invest in asset classes and/or apply trading strategies that result in their portfolios performing differently to traditional assets.

While it is easier to generalise about the likely return and risk profile of traditional asset classes such as equities, ‘alternative’ investments come in many different guises and are certainly not homogeneous in nature. Some investments are high risk/high return strategies, while some are more conservative in nature.

The opinions expressed in this content are those of the author shown, and do not necessarily represent those of No More Practice or its related entities. To view our full terms and conditions, click here.

Related lessons

Lesson type: Think like an investor

Is direct investing right for you?

Amanda Gillespie - 09/11/2015

Increased investor engagement with Self Managed Super Funds reflects an interest in taking greater control over investment decisions, however investor...

View Lesson >

Lesson type: Understanding investment philosophy

Active or passive: which fund management style is right for you?

Amanda Gillespie - 14/09/2015

Actively and passively managed funds both have their merits, and deciding which style is right for you will depend on an individual investor. Understa...

View Lesson >

Lesson type: Understanding diversification

Volatility - real and sustained portfolio diversification

Simon Ho - 24/08/2015

Volatility offers investors a unique opportunity to balance an equity-biased portfolio with an alternative asset class....

View Lesson >

Lesson type: Understanding diversification

The power of alternatives

Alex McNab - 24/08/2015

Australia must follow international investors, diversifying their portfolios in assets not correlated with financial markets....

View Lesson >

Lessons

Get the latest lessons

Enter your email address to subscribe to our Investment Series newsletter and we’ll let you know when new content goes live.

Please enter a valid email address.

Almost there!

Thank you for registering your interest in Lessons. . We’ll email you the latest content as it goes live. To complete the subscription process, click on the subscribe button below. An email will then be sent to you outlining steps to finalise your subscription.

We’re committed to helping you get the investment knowledge you want, so let us know what you’d love to see more of:

  • TV Show
  • Wealth Stories
  • Experts
  • All of the above

I have read and agree to the terms, privacy policy and financial services guide.