What does Alpha mean in investments?

There have always been unique words and phrases associated with investing and even more so since the stock market collapse in late 2008 through the beginning of 2009. [pullquote style=”left” quote=”dark”]..alpha, a term used to describe investments that bring enhanced performance outside of the typical stock and bond purchases.[/pullquote] One of those words most heard on financial networks and business shows was volatility. Another word that came into vogue during that time was alpha, a term used to describe investments that bring enhanced performance outside of the typical stock and bond purchases.

Generating Alpha

Bringing alpha to one’s portfolios can be done in numerous fashions. Perhaps your financial advisor sprinkles in commodities or purchases stocks with high standard deviation’s relative to the market. Maybe your portfolio contains mutual funds centered on specific sectors such as real estate, commodities, healthcare or energy. Purchasing alternative investments is a great way to reduce volatility and move into alpha centered holdings. Another way to generate alpha in a portfolio is through the purchase and sale of stock options. Stock options, or derivatives, allow the buyer or seller the opportunity to take advantage of directional moves of stocks in both directions. These are just a few ways to diversify your portfolio and invest in asset classes designed to outperform the market.

Generating Alpha and Managing Risk

[pullquote style=”right” quote=”dark”]..now is the time to adjust or reconfigure your portfolio into asset classes designed to provide absolute returns in all market environments[/pullquote] Alpha generating investments aren’t designed for every investor and one should speak to their financial advisor about implementing these into your portfolio. According to most financial professionals, the bond returns generated last year won’t approach that level this year so returns outside of stocks could be hard to find. The traditional 60-40 split between stocks and bonds worked perfectly last year and yielded returns in the double digits. But now is the time to adjust or reconfigure your portfolio into asset classes designed to provide absolute returns in all market environments. Using funds and strategies that provide alpha and alternatives is good way to accomplish that.

[pullquote style=”left” quote=”dark”]..using these unique investment strategies in your portfolio in a risk-adjusted manner can provide a bucket of investments providing returns above those of the traditional benchmark.[/pullquote] Moving into investments that are outside traditional investments isn’t for everyone and they do come with risk. Prior to using these investments, make sure they fit into your investment objective and make sense in terms of age and goals for retirement. Anytime you purchase investments with overall risk ahead of the S&P 500 brings with it the chance to suffer losses beyond what could reasonably be expected. But using these unique investment strategies in your portfolio in a risk-adjusted manner can provide a bucket of investments providing returns above those of the traditional benchmark.

Contact us to discuss on implementing alpha and alternative assets

Call us at 814.262.7474 or use our contact form about implementing these alpha and alternative asset plays into your investment strategy. They could be the perfect complement to your existing portfolio.