How alternative investments play an important role in portfolio resilience

economictimes.indiatimes.com:

Alternative investments can play a crucial role in enhancing portfolio resilience. These investments offer unique benefits that can help investors navigate market volatility and achieve better risk-adjusted returns.

Here's how alternative investments can enhance portfolio resilience:

Portfolio Diversification: Diversification is the key component of alternative investments' contribution to portfolio resilience.

Equities and bonds, two common asset classes, may show a high correlation or a propensity to move in lockstep. However, alternative investments cover a wide range of assets, including commodities, infrastructure, real estate, private equity, and hedge funds, which can have lower correlations with traditional assets.

This lack of correlation means that when traditional assets experience declines, alternative investments might remain relatively stable or even perform well. By diversifying across these different asset classes, investors can effectively spread risk, reducing the impact of a significant downturn in any area.

Potential for Higher Returns: While alternative investments can introduce higher risks, they also bring the potential for enhanced risk-adjusted returns.

By incorporating assets with different risk profiles, investors can optimize their portfolio's performance in various market conditions. For instance, private equity and venture capital offer exposure to companies in their growth stages, aiming for higher returns over the long term.