Managing market uncertainty with a diversified portfolio

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Discover why a diversified portfolio is essential in today's volatile markets.


What is a diversified portfolio?


A diversified portfolio is one that spreads investment capital across a broad mix of asset classes, sectors, geographies, and strategies with the aim of managing risk and enhancing long-term returns.

Traditionally, diversification has focused on public equities and fixed income. However, the definition has evolved. Today’s diversified portfolio increasingly includes alternative assets, such as private equity, private credit, hedge funds, and real assets into their portfolios. These alternatives often behave differently to public markets, potentially adding resilience during times of volatility.

In essence, diversification is not about chasing short-term gains. It’s about building a portfolio designed to weather uncertainty and compound wealth over the long haul.


Why diversify?

Markets are cyclical. Macroeconomic shocks, policy changes, and geopolitical tensions can impact public markets in unpredictable ways. Concentrating capital in a single asset class or region increases exposure to these risks.

Some benefits of diversification are:

  • Smoother returns: A diversified portfolio is less volatile than a concentrated one. It leads to more stable returns over time. The goal is to maintain steady growth rather than maximizing short-term gains.
  • Exposure to different opportunities: Diversification gives you access to different markets and industries, offering more opportunities and potential for growth.
  • Optimised Risk-Adjusted Returns: Diversification isn’t about avoiding risk altogether. It is about adjusting risk to a suitable level for the investor depending on their goals. In essence, diversification is a foundational principle not only for growth, but also for managing downside risks.

How investors approach allocation to alternatives


The right allocation to alternative investments will vary depending on each investor’s objectives, risk tolerance, and liquidity needs. Institutional investors typically allocate around 20 to 40% of their portfolios to alternatives.1 In contrast, the average individual accredited investor holds only 3% in alternatives, with mainstream retail investors allocating just 5% on average.2 As access widens, many individual investors are adopting a more gradual approach to building exposure over time.

The goal is not to replace public markets, but to complement them. By integrating alternatives thoughtfully, investors can enhance diversification and potentially improve portfolio resilience through different market cycles.

In a world marked by volatility, inflationary pressure, and rapid change, traditional 60/40 portfolios may no longer suffice. Investors who diversify across both public and private markets are better positioned to reduce volatility and capture long-term opportunities.

At ADDX, we believe that diversification should not be the privilege of a few. Through our platform, investors can access high-quality private market and alternative investment opportunities that were previously out of reach and do so in a way that is digitally seamless, transparent, and efficient.


Sources:

1Institutional Embrace of Alternatives Reaches 40% of Assets | Portfolio for the Future | CAIA

2Alts for All: The Rise of Alternative Investments for Individual Investors




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