Following on from an earlier post on adding alternatives to a portfolio the attached document is a short and precise commentary on the case for adding alternatives to a traditional portfolio. See link below.
The Title: “It’s an evolution, not a revolution” sums it up very well.
The article notes that the evolution in portfolio construction has moved away from the old way of style boxes, market expectations, and benchmarks, to a greater focus on the investors (clients) liabilities, risk tolerances, and an investors actual objectives – most likely funding requirements in retirement.
The article references the behavioural finance that people “feel the pain of losses far more they do the benefits of gains”. As they say, Investors want to minimise loses, and focus on outcomes rather than returns.
The article is then nicely concluded referencing one of Warren Buffet’s key influences, Benjamin Graham, quote “the essence of investment management is the management of risks, not the management of returns.” This is so true.
I agree with their concluding remark, “better to lose less and compound more than to reach for excess returns and fail to reach your objectives”. Alternative strategies can play an important role in compounding returns / wealth over time.
P.S. This article is an editorial that appeared in the Chief Investment Officer magazine.
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