A High Net Worth Investor’s Guide To Diversification And Higher Returns

I’m so tired of stock market volatility.

In today’s dynamic investment landscape, high-net-worth investors increasingly turn to alternative investments to diversify their portfolios and unlock higher returns. You’ve heard the term, but what actually IS an “ALT”? Alternative investments are broadly categorized as those investments that are not publicly listed stocks or bonds (i.e., alternatives to stocks and bonds). As traditional investment avenues face uncertainties and market volatility, alternatives offer a compelling opportunity for diversification and compounding wealth. The most common alternative in our client families’ portfolios at RBC Wealth Management is rental property of different variations. From the childhood home you purchased from your parents or the first condominium you held on to and now rent out, rental property is the most common version of an alternative investment. However, seldom do individuals categorize these holdings as such in their portfolios. Recently, we worked with a family that was transitioning a moderately sized portfolio of homes and apartments that they had owned throughout the years into a professionally managed fund, which provided similar investment exposure to real estate while adding some essential improvements such as professional management, diversification by geography, real estate type, risk management, and leverage. This family shed the costs of paying a manager to run their properties, the hassle of preparing partnership tax returns, and the business decisions related to problematic tenants, rent increases, etc. RBC Wealth Management’s alternative to this alternative was another alternative! Our solution? An exchange into a real estate fund. Through the transition the family took advantage of the 1031 exchange rule and avoided realizing what would have been a substantial long-term capital gain and increased their level of income, all while turning over management to a small professional manager with a terrific track record.

One of the primary advantages of alternatives for high-net-worth investors is their ability to help safeguard against market volatility. Traditional investments often suffer during turbulent times, but alternative investments have historically demonstrated resilience under challenging market conditions. According to a recent EY report, 81% of ultra-high-net-worth investors surveyed hold alternatives in their portfolios1, indicating their growing prominence in wealth management strategies. Alternatives consist of a wide range of asset classes, including physical assets, hedge funds, private equity, and structured products. These investments provide a low correlation with traditional assets, meaning that when the stock market performs poorly, many alternatives can perform well. By diversifying their portfolios across various alternative investments, high-net-worth individuals can reduce their exposure to market fluctuations and potentially enhance their overall risk-adjusted returns. This diversification strategy can act as a protective shield during periods of economic uncertainty and volatility.

Within the scope of alternatives, high-net-worth investors have a large selection of assets. Physical assets, such as natural resources, commodities, real estate, infrastructure, and intellectual property, provide tangible investments that hedge against inflation and preserve or increase value as inflation rises. These assets offer stability and the potential for long-term appreciation, making them attractive choices for wealth preservation and capital growth. Additionally, hedge funds and private equity investments present opportunities for enhanced returns. These investments tap into specialized strategies and expertise to generate alpha and outperform traditional market benchmarks. Structured products, including credit derivatives, offer further avenues for high-net-worth individuals to diversify their portfolios and access unique investment opportunities. Thus enabling high-net-worth investors to increase diversification and pursue higher returns.

The Core Group at RBC Wealth Management can provide proper guidance regarding alternatives and help investors maximize their investment strategy.

The Core Group

53 State Street, Suite 3600

Boston, MA 02109

(617) 725-1732


Investment and insurance products offered through RBC Wealth Management are not insured by the FDIC or any other federal government agency, are not deposits or other obligations of, or guaranteed by, a bank or any bank affiliate, and are subject to investment risks, including possible loss of the principal amount invested.

Client stories are for illustrative purposes only. They do not necessarily represent the experiences of other clients, and they do not indicate future performance. Results may vary.

Asset allocation and diversification do not assure a profit or protect against loss.

Investing in alternative investments may be speculative, illiquid and not suitable for all clients. They are intended for investors who meet certain criteria and are willing and able to bear the unique economic risks of the investment. Investors should consider whether such investments are suitable in the light of their individual financial situation.

RBC Wealth Management does not provide tax or legal advice. All decisions regarding the tax or legal implications of your investments should be made in connection with your independent tax or legal advisor. No information, including but not limited to written materials, provided by RBC WM should be construed as legal, accounting or tax advice.

© 2023 RBC Wealth Management, a division of RBC Capital Markets, LLC, registered investment adviser and Member NYSE/FINRA/SIPC. All rights reserved.

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