Investors are holding a record amount of Fixed Income in their portfolios. It’s no wonder. Four years after the financial crisis, shell-shocked investors have continued to flee to bonds in order to lower their exposure to volatility and risk; and to capture yield. Of course, typically investors pile in to an asset class at the wrong timeNew public policy may add clouds of doubt for dividend investors. White House proposals to raise the dividend tax rate to the higher personal income tax rate of 39.6% have some talking of an end to the party. If this proposal becomes reality, investors in dividend-paying equities may see values erode. And even if the tax hike doesn’t come to fruition, keep in mind what would likely happen when the stock market heads south again.
Alternative investments remain mysterious to some investors. Endless amounts of articles have either celebrated their virtues or warned of their risk. The fact is that there are a wide array of alternative asset classes and alternative investment strategies from which to choose. There are some benefits of these as Access to Asset Classes with Independent Return Characteristics,Low Correlation to Stocks and Bonds, The Potential to Enhance Returns and the Ability to Reduce Risk of Overall Portfolio.
The purpose of alternative strategies is to enhance diversification and mitigate risk. In a dramatic drawdown period such as 2008 for example, the traditional equity market was down 37%.Alternative strategies have the ability to help manage risk within a portfolio, because they have different risk characteristics associated with them compared to traditional investments.
