An ‘Alternative’ to Traditional Stocks and Bond Investing

  • Welcome to our primer on alternative investments.

    As traditional assets, stocks and bonds, become more overvalued one needs to explore ‘alternative’ investment solutions. At Gratke Wealth, we have been using alternative investments for over the past decade and longer.

    This page is a primer to help you understand what alternative investments are, and why we include them in client portfolios. But before we start, do note that alternative investments have been used for decades by foundations, endowments and pension plans. Why, historically speaking, with alternatives, an investment portfolio has had higher returns with less risk as we will illustrate below.

    But before we start, how over valued are traditional markets? Go here to learn.

    Let’s start with What is an ‘Alternative’ Investment?

    This short 5:44 video discusses what an alternative investment is, and how they can be used to increase returns and reduce risk during certain market environments. Go here to launch video.

    Types of alternative investments

    At Gratke Wealth, we may use any or all of these ‘baskets’ to manage risk and return inside of client portfolios.

    • ●Long/Short Equity: Investing in both up and down trends within this market.
    • ●Long/Short Fixed Income: Investing in both up and down trends within this market.
    • ●Global Macro: ‘Big Picture’ investing. Looking at large global trends and investing accordingly.
    • ●Managed Futures: Investing in both up and down trends within this market to equities, fixed income, commodities and currencies.
    • ●Real Estate: Privately held and publicly held commercial properties

    The chart below reflects both a 10% and a 20% allocation of multi-strategy alternative allocations in a traditional 60/40 portfolio of stocks and bonds.

    (click to enlarge graph) Chart Source: Palmer Square Capital Management.

    Why Multi-Strategy Alternatives? Go here to learn

    Remember however, Past Performance Is Not an Indication of Future Results.

    Below we have several graphics showing multi-strategy alternative assets mixed in with traditional assets. Historical net result, higher returns, lower risk (portfolio flucutation/standard deviation).

    The first graphic below compares a traditional 60% stock/40% bond portfolio to a portfolio that included alternative investments over a ten-year period. Summation: Increased returns, reduced risk. The upper line on the chart (below) is the portfolio with ‘Multi-Strategy Alternative’ investments.

    We use a number of ‘best-of-breed’ asset managers to achieve our client’s objectives. In many cases, we are able to access global managers, who when dealing directly, require as much as $50mm minimum account balances. Our processes bypass this minimum requirement.

    (click to enlarge graph) Chart Source: Altegris Advisors.

     Why use Alternatives in a portfolio?
    Historical net result, higher returns, lower risk-portfolio fluctuation/standard deviation.

    (click to enlarge graph) Chart Source: Attain Capital

     Why use Alternatives in a portfolio?
    Historical net result, higher returns, lower risk-portfolio fluctuation/standard deviation.

    The chart below reflects ‘drawdown’; the amount of decline from an asset during market downturns. Note that alternatives moved up in June 2008 and Jan. 2009 while broad markets declined.

    (click to enlarge graph) Chart Source: Palmer Square Capital Management.

     Why use Alternatives in a portfolio?
    Historical net result, higher returns, lower risk-portfolio fluctuation/standard deviation.

    The chart below reflects the movement (correlation) of alternative assets to traditional assets such as stock and bonds.

    (click to enlarge graph) Chart Source: Natixis Global Asset Management.

     

    A Decade’s Perspective on Alternatives

    (click to enlarge graph) Chart Source: Altegris Investments.

    (click to enlarge graph) Chart Source: Attain Capital

    Alternatives Asset Allocator:

    Go here to launch the ‘Alternatives Asset Allocator’ and see how by adding alternative investments to one’s portfolio historically it has increased returns while lowering risk. The link will launch a new window/tab; once loaded, slide the ‘Slide to Add Alternatives‘ tab below the graphics to see the change in risk and return by adding, or subtracting, alternatives to a traditional portfolio of stocks and bonds.

    Goldman Sachs Alternative Investment Allocation Tool, Go here to launch their calculator which reflects historical ‘drawdowns’ during the 1998 Russian Default, the 2000 tech bubble and the 2007 Great Recession.

    Additional reading: Articles written and published by Gratke Wealth.

    How to Combat Volatility, Go here to learn. A discussion on how to manage equity risk in the portfolio.

    The Equity Bubble, Go here to learn. A review of current stock market valuations.

    Escaping Higher Bond Yields, Go here to learn. A discussion on how to manage a portfolio in a rising rate environment.

    The Bond Bubble, Go here to learn. A review of current bond/fixed income market valuations.

    Exiting Managed Futures Now?, Go here to learn. A discussion on recent trends in managed futures.

    Managed Futures in the Portfolio: Why and Why Now? Go here to learn.

    Managed Futures in Action, An update: an observation of managed futures during two recent market downturns. Go here to learn.


    Note our Pinterest page on Alternatives found here.

     

     

    Chasing Return (and Risk)!

    Today too many investors are chasing returns at the top of the market in traditional assets such as stocks and bonds without adequate downside protect (see graph below). We are not apart of this crowd. Let Gratke Wealth help you build a portfolio that will endure, not only today, but during the next major market downturn. Do note, certain sub-groups of alternative investments have been out of favor for the past few years. These particular asset classes have not participated, as much, in the upward movement of the broader markets. Hence these assets are not overvalued like much of the traditional markets are right now.

    Go here to schedule an appointment with us! We look forward to meeting with you and discussing the ‘alternatives’

    (click to enlarge graph) Chart Source: STAWealth

    A word on Diversification.

    To have a truly diversified portfolio of securities, by its very definition, not all assets can move in the same direction at the same time. There must be assets, at any one point in time, that are moving in the opposite direction of other assets in the portfolio. If all assets were moving in the same direction (up or down), at the same time, then the portfolio would not be diversified. Sometimes alternative assets do not participate as significantly when broad markets are advancing hence the desire to a.) not own them, and b.) to divest oneself of them if they do own them during these advancing market. It is when broad markets decline, and correct sharply, that alternative investments have historically outperformed, and often by wide margin. This the inclusion of such assets into the client portfolio.

     

    Go here to schedule an appointment with us! We look forward to meeting with you and discussing the ‘alternatives’

    Let us analyze your holdings to determine what percent alternatives investments should comprise in your portfolio.

     

    Go here to schedule an appointment with us! We look forward to meeting with you and discussing the ‘alternatives’

     

 

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  • Gratke Wealth, LLC is a registered investment adviser in the State of Oregon, California. The adviser may not transact business in states where it is not appropriately registered, excluded or exempted from registration. Individualized responses to persons that involve either the effecting of transaction in securities, or the rendering of personalized investment advice for compensation, will not be made without registration or exemption.