Direct Investment in Private Companies
In rare cases we may hold shares of your private company directly in your account. This can be for a variety of reasons that are specific to you, such as holding shares of a company you have direct control over in your RRSP if eligible, or other reasons specific to you.
Real Estate
Investing in property can be a wonderful way for investors to diversify their portfolio. Again, for our clients, for diversification benefits we would normally invest through a fund, such as real estate investment trust (REIT), rather than directly in properties. There are publicly traded REITs as well as private REITs. Public REITs are liquid. Private REITs are not but have much lower correlation to the stock market and can be more attractive. As many of our clients already have a considerable portion of their net worth exposed to real estate due to the the high valuations of Canadian residential real estate we tend not to add to it in their investment portfolios by investing in REITs.
Commodities and Precious Metals
Investing in commodities is another alternative that big pension funds and endowment funds have utilized for decades, primarily as a hedge against inflation. While commodities have been out of favour in the last ten years or so, they may still have a place in clients’ portfolios.
Bailing out systemically important companies that were too big to fail during the financial crisis, extremely accommodative monetary policy by central banks for over a decade in the form of low interest rates again as a response to the global financial crisis of 2008 as well as fiscal stimulus in the form of massive budget deficits by the US government and others has created a massive amount of debt owed by western nations to bond investors which can realistically only be paid back with synchronized devalued currencies. Add to this the global response to COVID-19 with additional borrowing and quantitative easing, the case becomes even stronger. Commodities and precious metals should fare well under such an environment over the next three to four decades.
Real Assets and Infrastructure
Similar to real estate, real assets are assets that increase in value over time and have little direct correlation to the stock market. These assets might include toll roads and bridges, agricultural land, collectibles such as coins or art, wine, exotic cars, etc. The downside of these assets is that they may be really illiquid, meaning you cannot get your money out as easily or often. While there may be some very good benefits to owning such assets, unfortunately at the moment we do not have access to a single such Canadian domiciled fund for our clients to invest in. We are on the lookout for that.
Alternative Investing: Conclusion
In conclusion, diversifying your investment portfolio is one of the best ways to protect yourself and your family against the risks associated with investing in the stock market. While alternative investments are one of the best ways to diversify your portfolio, choosing where to invest your capital involves considering a variety of factors such as how much you value liquidity; whether you are willing to pay extra fees to a fund manager or whether you would rather invest on your own; your current net worth and income; and whether you want to collaborate with fellow investors or invest alone.
Working with a fiduciary investment advisor can help you clarify your goals and choose which investments align with your values and needs. Constantine Lycos leads the team in alternative investing.
