Why Alternative Investments Should Be a Core Part of Your Portfolio


by Manny Frangiadakis, AIF®, CPFA®, Co-Founder and Principal

During his monthly segment as financial reporter for Radio Entrepreneurs in April, Manny Frangiadakis spoke with program host Jeff Davis about alternative investments. Their discussion covered an explanation of what they are, why they are important and why the average investor doesn’t necessarily know much about them.

Why Alternative Investments Should be a Core Part of your Portfolio

The average investor is typically familiar with the three major investment categories: equities (i.e.,  U.S. and foreign stocks), bonds (i.e.,  treasury notes and 30-year bonds) and cash alternatives (i.e., money market funds and CDs). “People often forget about alternative investments,” Manny points out. “They also may not understand much about them. Some examples of alternative investments are hedge funds, real estate, derivatives, stock alternatives, options…things of that nature.”

Why is it important to consider adding alternative investments to your portfolio? According to Manny, “they give you an opportunity to capture a long-term yield because they are more of a long-term investment. They provide the opportunity to capture yield in both bear and bull markets, especially when equities are underperforming. If the S&P 500 is at an all-time high, as it has been in recent months, it’s difficult to capture value because you’ll be paying a premium. Alternative investments give you a chance to get that yield in other places.”

As Jeff points out, baby boomers looking for a fixed income and lifestyle may be reluctant to invest in alternatives. “I think people would be more open to them if they understood them better,” Manny explains. “They hear the word ‘alternative’ and they think it’s risky. Back in the day, you had to pay to play; hedge funds were more for people making $250,000 a year. The risk that was associated with them was a lack of liquidity. That doesn’t really exist anymore. Today, the average investor can access alternative investments through mutual funds and exchange-traded funds (ETFs).”

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