Alternative assets are typically designed to make up a smaller proportion of any portfolio, due to their higher risk profile when compared to traditional investments. Financial experts tend to recommend a 5% or lower allocation to alternative assets for individual investors, although research shows the very wealthy tend to allocate considerably more than 5% to alternatives[1].
Maximising returns and spreading risk
The proportion of a portfolio allocated to alternative assets can provide diversification, boost returns, and spread risk by not being correlated with the share market. Some alternative assets are considered more predictable than others, with a more established track record for performance.
These include:
· Private equity – though highly risky, returns can be enormous.
· Private debt – a fast-growing sector of the alternative assets market where investors lend money and earn interest from borrowers.
· Private property investment – including owning rental properties directly, as well as syndicates in commercial real estate or other private property funds.
· Gold – long considered a hedge against inflation.
· Forestry – very low correlation with markets.
Ideally, a portfolio’s alternative assets should be chosen extremely carefully to maximise diversity and minimise unnecessary risk. A financial advisor is invaluable here in assisting investors to choose assets that fit their risk tolerance and long-term financial goals.
Is Zagga a good fit for your portfolio?
Private debt investment in a Zagga loan is suitable for investors who:
· Are looking for diversification in their portfolio.
· Would like higher returns than they can achieve in shares and bonds.
· Are after a regular income
· Wish to invest a proportion of their total portfolio in an alternative asset class.
To know whether any alternative investment is right for you, speak to your financial advisor. They can provide tailored advice to suit your situation.