UniFi by CAIA Crossing the Threshold - 26

A BETTER WAY FORWARD
Aligning Portfolios with Goals
Sylvia Kwan, PhD, CFA, CAIA
Chief Investment Officer, Ellevest
For long-term investors, adding alternative investments to a traditional portfolio of stocks
and bonds can be a powerful way to diversify overall portfolio risk, enhance potential
returns, generate income, and if desired, make a direct, positive impact to address
economic and environmental issues. Successfully incorporating alternatives into a portfolio
strategy starts with purpose-the specific goals the investor wants to achieve. Whether
the objective is growth, income, inflation protection, diversification, positive impact, or a
combination-having a clear understanding of the investor's goals is the key to successful
implementation and a rewarding investor experience.
Investing with Intention
Before adding alternatives to a portfolio, it is critical for you to think about " the why " .
Why invest in alternatives for this investor? What role or purpose does an alternatives
allocation play within the investor's overall portfolio? How would an alternatives allocation
contribute towards or detract from the achievement of the investor's goals? The answers
will depend not only on objectives, but liquidity needs, tax posture, risk capacity, and other
circumstances unique to each investor.
In the past, allocations to alternative investments were made by combining several
strategies together, including real estate, private equity, managed futures, long/short
equity, or another hedge fund strategy. This diversified " alternatives " portfolio would
then be slotted into a model portfolio of stocks and bonds, with sizing being the only
variable. While this one-size-fits-all approach was a good start, employing a goals-based
framework when constructing portfolios with alternatives can reap greater benefits for
both investors and advisors.
26 A BETTER WAY FORWARD

UniFi by CAIA Crossing the Threshold

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