The Role and Use of Alternative Investments
The savviest investors are making significant allocations to alternative investments, according to Tony Davidow, CIMA, author of Goals-based Investing.
Key Takeaways
- Allocate 10-20% of your portfolio to alternatives as a starting point, but only if you can commit enough to meaningfully impact your portfolio—avoid token allocations that won't make a difference
- Don't treat all hedge funds equally; identify specific strategies (equity hedged, macro, relative value, managed futures) that solve different portfolio needs rather than chasing outperformance in bull markets
- Diversify across multiple hedge fund strategies rather than concentrating 100% in one strategy to build both offense and defense with low or negative correlation to traditional investments
- Never invest in alternatives you don't fully understand—consult resources like the CAIA Association, traditional asset managers (Pimco, Nuveen), and manager research, and always clarify what role each strategy should play before investing
- Assess your liquidity needs and comfort level with illiquid investments before committing to alternatives, since some strategies involve lock-up periods you need to accept upfront
The Role and Use of Alternative Investments: The savviest investors are making significant allocations to alternative investments, according to Tony Davidow, CIMA, author of Goals-based Investing. Watch more Tony Davidow and other financial advisor videos from finStream's Financial Advisor Center at this link: https://www.finstream.tv/videos/financial-advisor-center/
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