As global market volatility continues, it remains increasingly important that institutional investors aim to reduce volatility through diversification. Investors of diversified portfolios are continually looking for uncorrelated investments in an attempt to reduce unsystematic risk and improve the risk/return profile of the total portfolio. Many investors have looked to the alternative asset classes as a way to provide this sought-after diversification. Alternative investments such as real estate have been a key part of institutional portfolios for over 20 years, but due to the changing economic environment there continues to be a search for newer opportunities. One alternative asset class that has grown in attractiveness in recent years is commodities.
Diversify to invest smartly
Diversification is a risk management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique contends that a portfolio of different kinds of investments will, on average, yield higher returns and pose a lower risk than any individual investment found within the portfolio.
"I have never regretted buying diamonds ... they are a good investment."
Warren Buffet
Commodity investments, which fall under the real assets category of the alternative asset class, have many characteristics that make them attractive to institutional investors. Commodities are broken into several main categories such as energy, agriculture, livestock and metals. These groupings are comprised of numerous raw materials, including natural gas, crude oil, aluminum, copper, gold and diamonds. Under “Diamonds vs. gold” the particularly interesting and unique position of diamonds in the broad category of commodities is explained.
During difficult economic times the following diversified investment mix is highly recommendable:
- 1/3 real estate
- 1/3 fixed-interest securities
- 1/3 movable assets/commodities, such as diamonds
In conclusion, diversifying your investment portfolio is a smart action and buying commodities such as diamonds perfectly fits in this investment rationale.
More information Why invest in Diamonds?