Many Canadian investors build portfolios primarily with stocks and bonds. While these traditional assets remain important, alternative investments can provide added diversification, risk reduction, and the potential for enhanced returns. By looking beyond the conventional, investors may strengthen their portfolios against market volatility and inflation.
What Are Alternative Investments
Alternative investments are asset classes outside of equities and fixed income. They include holdings such as real estate, private equity, hedge funds, commodities, and REITs. These assets often behave differently than stocks or bonds, providing unique return patterns and risk profiles that can complement traditional investments.
Types of Alternative Investments for Canadian Investors
Real estate: direct property ownership, commercial real estate, and development projects.
REITs: publicly traded funds that provide access to real estate with added liquidity.
Private equity: investments in private companies not listed on public exchanges, often with higher growth potential but longer holding periods.
Hedge funds: pooled investment vehicles that use advanced strategies such as leverage, derivatives, or short selling.
Commodities: exposure to resources like oil, gold, or agricultural products that often act as hedges against inflation.
Benefits of Adding Alternatives
Diversification: alternatives can reduce reliance on the performance of stocks and bonds.
Risk reduction: assets such as real estate and commodities may offset equity volatility.
Return enhancement: private equity and hedge funds may provide higher growth opportunities.
Inflation protection: commodities and real estate often help preserve purchasing power.
Risks and Considerations
Liquidity: many alternative investments require long holding periods, making it harder to access capital quickly.
Costs: fees are often higher than those of traditional funds.
Regulation: alternatives may operate under different rules than standard securities, requiring careful review.
Complexity: strategies can be difficult to understand without professional guidance.
Who Should Consider Alternatives
Alternative investments are not suitable for every investor. They are most often considered by high net worth individuals, families with established portfolios, and investors with longer time horizons who can accept reduced liquidity. Suitability depends on goals, wealth levels, and risk tolerance.
How Alternatives Fit Into a Broader Portfolio
Alternatives should complement, not replace, traditional investments. A thoughtful allocation might dedicate a modest portion of a portfolio to real estate, private equity, or commodities while maintaining a strong foundation in equities and fixed income. Over time, alternatives can add stability and growth potential.
Professional advice ensures alternatives are incorporated strategically. At Bilyk Financial, we guide clients through Investment Management, Risk Management, and Tax Planning to ensure their portfolios remain resilient. For families with complex needs, our Family Office services provide a comprehensive approach to wealth management.
Aligned Capital Partners Inc. (“ACPI”) is a full-service investment dealer and a member of the Canadian Investor Protection Fund (“CIPF”) and Canadian Investment Regulatory Organization (“CIRO”). Investment services are provided through Bilyk Financial Private Client, an approved trade name of ACPI. Only investment-related products and services are offered through Bilyk Financial Private Client and covered by the CIPF. Financial planning and insurance services are provided through Bilyk Financial Wealth Management. Bilyk Financial Wealth Management is an independent company separate and distinct from Bilyk Financial Private Client.