When investing your hard-earned money, it's wise not to put all your eggs in one basket. Diversifying your investment portfolio means spreading your investments around across various asset classes. This includes putting some of your money in stocks, some in bonds, and keeping some in cash. However, have you ever considered that there might be a benefit to including alternative investment options in your portfolio?

Figuring out these broader investment options can be tricky, so it's helpful to have a financial advisor guide you. An advisor can explain the various investment types, assess your risk tolerance, and customize options to fit your long-term financial goals.

Building Your Diversified Investment Portfolio

Taking a step beyond the usual investments like stocks, mutual funds, etc. can strengthen your portfolio. Investing in alternative assets can provide stability during market downturns, as they tend to be less affected by traditional market trends when compared to traditional investments. These investments can also help protect your portfolio against the effects of inflation. Let's explore some alternative assets that have the potential to reduce investment risk and improve your returns.

Real Estate

The real estate market is not just about purchasing a home. It is a solid investment strategy that has proven its worth over time. Statista projects that the US real estate market might reach a value of $120 trillion by 2024 with a consistent upward trajectory. It is then forecasted to grow at a compound annual growth rate (CAGR) of 4.51%, elevating the market volume to over $140 trillion by the end of 2028. Including real estate in your portfolio may help you tap into this growth.

Real estate investment can offer potential value appreciation and a steady stream of rental income. Additionally, real estate often moves independently from the stock market, which can help safeguard your portfolio during market downturns and economic fluctuations.

Private Equity

Adding private equity to your portfolio involves investing in companies not publicly listed on the stock market. According to statistics, private equity has performed impressively over the past two decades, delivering a net annualized return of 11%. This outperforms the public stock market, which had a return of 6.2% during the same period. 

Private equity offers the potential for higher yields, but it comes with a higher level of risk, so it is typically available to accredited investors—some private investments require clients to be “qualified clients.” If you're attracted to the possibility of greater gains, exploring private equity might be appealing.

Art and Collectibles

Investing in art and collectibles might align perfectly with your interests if you have an eye for aesthetics and a passion for culture. Art and collectibles are significant financial assets.

Based on Deloitte's Private and ArtTactic Art & Finance Report, ultra-high-net-worth individuals globally have an estimated combined wealth exceeding $2 trillion in this category. Furthermore, 89% of wealth managers, collectors, and art professionals believe art and collectibles should be part of comprehensive wealth management strategies. If your instinct can spot the potential value in a unique painting or a rare vintage, diversifying into this asset class could bring a touch of creativity as well as financial growth to your portfolio.

Commodities

Adding commodities such as gold or oil to your investment portfolio can help diversify your investments because their values often move independently from stock market trends. This can be especially useful for managing risk. Although commodities trading might seem complex, incorporating them into your investment strategy can be a wise choice for expanding your investment options and providing additional protection against market volatility.

The Aligned Perspective: Portfolio Diversification

Venturing into the complex investing world can be intimidating, especially when moving outside the familiar territory of stocks, bonds, and cash. Managing portfolio risk through diverse asset allocation is essential in an age where markets fluctuate and interest rates rise all too often. However, pinpointing the exact assets that complement your financial objectives requires insight.

Here's where the expertise of a financial advisor comes into play. In addition to helping you combine different investments to reduce risk, they can customize a diversification strategy that aligns with your unique goals.

Financial advisors offer valuable guidance that assists investors in avoiding mistakes and taking advantage of growth opportunities. A Canadian study found that 60% of investors acknowledge that their advisors are key to achieving better outcomes. By law, these financial professionals are bound by a fiduciary duty to act in their clients' best interests as advisors and guardians of their financial journey. With this customized support, you are well-prepared to handle market fluctuations, ensuring your portfolio remains strong and ready to capitalize on opportunities.