For many investors today, we believe the optimal investment portfolio should provide for a higher return than the Minimum Acceptable Return, or a higher return than a traditional benchmark (e.g., the S&P 500 Index), but more importantly, should do so with less risk. How might such a portfolio be constructed? First, it should be diversified using different asset classes which serve to lower risk. Second, the components should ideally have favorable tax treatment on gains. Third, and perhaps most importantly, some components should perform better, providing a potentially higher rate of return than available otherwise.
Studies have shown that most portfolios would benefit from the addition of an asset class known as “Alternative Investments” which includes managed accounts in futures, commodities and foreign currencies. This can result in a smoother return curve, and enables the portfolio to have a higher overall return given the same risk. One well known study by Barclays calculated numerous portfolios with different asset mixes and concluded that the worst case was 50% stocks and 50% bonds. This mix exhibited the lowest return and the highest risk. The same study also concluded that the optimum portfolio was 40% Stocks, 40% Bonds, and 20% Alternative Investments.This optimum portfolio produced both the highest return and the lowest risk.
Past performance is not a guarantee of future results. Unusually high returns may not be sustainable. Investment return and principal value will fluctuate with changing market conditions so that shares, when redeemed, may be worth more or less than their original cost. Returns assume the reinvestment of all dividends and capital gain distributions.Investment return and principal value will fluctuate and it is possible to lose money by investing. Current performance may be lower or higher than the return figures quoted. There are risks involved with investing, including the risk of loss of principal. There is no assurance that the investment process will consistently lead to successful results. You should consider investment objectives, risks, and charges and expenses carefully before you invest.