Alternative investments comprise of a range of non-traditional assets, like real estate, hedge funds, direct lending, infrastructure, venture capital and private equity. As Kavan Choksi UAE points out, such assets typically have quite a different risk-return profile in comparison to traditional stocks and bonds. Hence, they can provide diversification benefits and the potential for higher returns. Investors should try to diversify their portfolio with the integration of a mix of alternative investments tailored to their investment goals and risk tolerance. Doing so can help mitigate inflation risks while offering potential capital appreciation.
Kavan Choksi UAE Sheds Light on Leveraging Alternative Investments as a Hedge Against Inflation
When there is a risk of inflation looming over, traditional investment vehicles might not be able to deliver adequate returns to offset the rising costs of goods and services. Hence, savvy investors tend to cross traditional boundaries and turn to alternative investments. Diversifying the portfolio with a mix of alternative investments can be instrumental in mitigating inflation risk. Following a balanced approach, with the integration of private equity, real estate, and commodities in the investment portfolio, would be a smart choice.
One can especially consider investing in:
- Private alternative investments: Private alternative investments such as venture capital, hedge funds and private equity promise superior returns and provide a higher degree of control over investment strategies. They are relatively less tied to traditional markets, and tend to act as a potential buffer against inflation. During the 2008 financial crisis, for instance, certain hedge funds provided positive returns even as the stock market significantly dipped. This highlighted their potential to hedge against market volatility.
- Private debt, real estate and infrastructure: Investors looking for a higher yield should consider investing in private debt funds. Such funds typically put emphasis on discerning debt instruments like mezzanine debt and senior secured loans. They promise higher returns in comparison to traditional fixed-income investments. The income from such funds is not much impacted by inflation, therefore, ensuring a steady cash flow. REITs or Real Estate Investment Trusts are investments that would allow one to enjoy income streams that adjust with inflation, thereby preserving purchasing power. As property values and rental incomes generally rise with the cost of living, real estate may benefit from inflation. With their long-term contracts and essential services, infrastructure investments can also provide a natural hedge.
- Commodities and TIPS: Commodities like gold, oil, and agricultural products have especially performed well historically during inflationary periods. As inflation hits, the value of such tangible assets generally goes up, making them a dependable investment. Investing in Treasury Inflation-Protected Securities (TIPS) can also add a layer of defence. They provide returns indexed to inflation, thereby preserving real value.
As per Kavan Choksi UAE, investors must take their investment goals and risk tolerance into account prior to allocating a portion of their portfolio to inflation-hedging assets. A stock-heavy portfolio is likely to maintain a diversified allocation without drastic changes. On the other hand, bond-heavy portfolios might benefit from a more aggressive shift towards alternative assets.
