It is said that the only free lunch in investing is diversification. By combining uncorrelated assets, wealth has the potential to grow more consistently, allowing investors to pursue their financial objectives with heightened certainty.
Yet, an intriguing question persists: why do so many investors hesitate to diversify their portfolios with alternative investments? As we delve deeper, a common response emerges — it's not merely about incorporating new elements into a portfolio; it's also about the act of subtraction.
Introducing an alternative investment strategy typically necessitates selling some of the core stocks and bonds within a portfolio. This, in turn, can result in a noticeable performance drag, particularly when alternatives exhibit underperformance in comparison to these traditional core assets.
However, envision a scenario where integrating an alternative investment doesn't entail parting ways with core stocks and bonds. What if the alternative investment could seamlessly complement and augment the existing portfolio?
Managed Futures introduces a unique concept known as notional funding. Notional funding is favored by investors for its effective utilization of leverage at no cost. The leverage is deemed “free” because it doesn’t involve borrowing or depositing funds. The notional funding level is a good faith deposit for the full value of the account.
This innovative approach enables the traditional part of the portfolio to remain largely fully invested, while stacking an alternative through a managed futures investment product. This results in a harmonious blend that provides the sought-after diversification without compromising the returns from core investment in stocks and bonds.
For a more in-depth understanding of these concepts and effective diversification strategies, please don't hesitate to reach out to us.