Portfolio Diversification and Asset Allocation

Portfolio Diversification and Asset Allocation

CONSTANTINE LYCOS, FOUNDER AND CEO AT LYCOS ASSET MANAGEMENT

At Lycos Asset Management, we always talk about investors being well-diversified and having long-term time horizons.

Portfolio Diversification

Being “well-diversified”, what does that mean? It is not just about having investments in different parts of the world. Rather, it is more important to have investments in different asset classes. What type of asset classes should there be in an investor’s portfolio? It depends on their investment objectives, risk tolerance, and time horizon.

Asset Classes

There are asset classes to consider in addition to the typical stock and bond portfolios that most investors own. Institutional investors in Canada and across the world commonly use private equity, absolute returns strategies, such as hedge funds and private credit or private debt; commodities; precious metals; cash; and possibly cryptocurrencies. These asset types are often evaluated as part of a broader wealth management strategy to improve diversification and long-term outcomes.

There are some other asset classes that are good, but perhaps we cannot get exposure through liquid investment vehicles or with sufficiently low enough minimum investment amounts for non-institutional clients. They include infrastructure, farmland, rough diamonds, art and direct ownership of real estate. They should also be considered depending on the size of the portfolio.

The Right Asset Allocation For You

So, what is the right “mix” for an individual investor? Well, that is something that needs to be discussed with their financial advisor. Or, if people would like to ask us, we would be happy to recommend an asset allocation and specific investment portfolio for you.