Hearing the mainstream investment media describe diversification, you’d be tempted to believe that mixing stocks with bonds and maybe some international securities would be enough to accomplish it. But, as we now know all too well, all public securities can move together in a downturn — meaning that “diversification” within the confines of Wall Street isn’t really meaningful.
Institutional investors — i.e., managers of university endowments, pension funds, and other large scale portfolios — have long understood that real diversification means investing beyond the public markets. Through hedge funds and other sources, these investors have protected their principal and improve their ability to maintain fund growth. Now, as USA Today reports, individual investors are beginning to tap into alternatives — helped by fund managers like Adam Patti of IndexIQ.
Patti describes his drive to expand access to alternatives as “democratizing alternatives” — a phrase we like, since we’ve been talking about democratizing access to the private real estate loan investments we offer for some time now.
Bottom line: whether you hear it from us or hear it from Patti, the message is crucial for individual investors: real diversification means investing part of your portfolio outside Wall Street. Institutions (and individuals in the know) have long had access to investments like trust deeds (mortgage notes), rental property and other real estate, private equities and private funds. Expanding awareness and access to these investments to all individual investors is an important move forward.