Alternative strategies have the potential to be a viable way for investors, whether institutional or retail, to reduce risk in their investment portfolios.
Nevertheless, many still harbor mistaken assumptions about alternatives. Here are some of the most common misconceptions, followed by explanations.
- Misconception #1: Alternative strategies are too volatile and only suited for aggressive investors.
- Misconception #2: All alternative investment strategies are created equal.
- Misconception #3: Alternative investments are only geared toward high-net-worth and institutional investors and are off-limits to retail clients.
- Misconception #4: Alternative investments should be viewed as standalone investments.
- Misconception #5: Absolute returns/hedge funds have to show positive returns in every calendar year.
- Misconception #6: Incorporating a small percentage of alternatives investments within a portfolio constitutes an adequate level of diversification.