Risk managed portfolios
Risk managed portfolios are achieved by allocating to dissimilar price movement asset classes which is a primary goal for prudent portfolio management. Because alternatives are not stocks or bonds, by definition, they have dissimilar price movement to stocks. To reduce the volatility of returns of an all stock portfolio, prudent portfolio managers look to use any good asset class that exhibits dissimilar price movement. The popular choice is bonds, which have become very difficult to justify in today’s environment. As a complement to bonds, or even a replacement for bonds, alternatives have many characteristics making them a superior choice. Learn more
Inefficient markets
Inefficient markets is a characteristic of alternatives where experts in the alternative asset class are able to harvest inefficiencies consistently and economically over the longest time frames. I have found that with prudent research I can identify many real estate managers who have earned multiples of what a risk-managed benchmark produces over decades of time. Another way to find inefficient markets is when we can identify a big discrepancy between 1st and 3rd quartiles of performance by managers. Learn more
Higher expected returns
Higher expected returns can be expected when carefully identified managers in an inefficient market can produce better returns than is normally expected in that market. In the efficient, or publicly traded market, it is market returns dominating individual portfolio returns. But in the inefficient market of alternatives, the skill of the manager is the overwhelming influence in determining returns. This is where the best research by advisors will pay huge dividends for us as well as the client. Learn more
High Impact investments
High Impact investments are readily available, particularly as an angel investment in a start-up business or in private equity investments. A portfolio of diversified angel investments can include many opportunities to be at the very beginning of a revolutionary or disruptive invention that can save lives or make the world a better place to live. Entrepreneurs with internet technology (IT) prowess are constantly changing how we live in all facets of our lives, but medical innovations are the fastest growing. Learn more
Diversification is your only safety
Diversification is your only safety is the tag line for The Family Wealth Consulting Group because it represents a powerful risk-management methodology that works in all cases. At FWCG, we developed that strong investment attitude after reading quotes from the Nobel Laureate Harry Markowitz, “Diversification is a free lunch” as well as Merton Miller, Nobel Laureate, “Diversification is your buddy”. Whichever phrase motivates you, any prudent, disciplined advisor using alternatives in a stock portfolio will create a level of effective diversification not otherwise available. Learn more
Maximizing the illiquidity premium
Maximizing the illiquidity premium while using alternatives starts with an acceptance that it really exists as it is described by many industry experts. I assist my clients in both earning that premium while overcoming the illiquidity nature of it by using a discipline of annual investments that results in annual liquidity after the 5th year. It is real estate and angel investments that are so illiquid that we must wait years for the actual exit, while market loans may be the only alternative investment that are normally liquid in about 90 days. It is important to realize that real estate plans for an exit by sales in 5+ years as a normal business plan, which means if you lump sum your total allocation to real estate in year #1, you can’t expect liquidity until year #5. Unless you also have a plan to invest in year #2, then you will get liquidity from that investment 5 years later, or close to year #6. At FWCG, our clients invest small amounts annually, which will produce annual liquidity in the 5th and subsequent years. This methodology can be described as: “By emphasizing efficient diversification, significant liquidity can be designed into a portfolio by continuously and permanently making annual investments of small amounts into many real estate deals with planned exit cycles in 5-7 years” (see full explanation with examples). This methodology is the ultimate in diversification because by the 5th year and thereafter money is spread out over dozens of managers with different investment methodologies owning many addresses in multiple geographies with different demographic drivers AND during many rolling economic timeframes. That is the ultimate in diversification across the major drivers of returns in real estate. Learn more
