Tony Davidow, the Senior Alternatives Strategist at Franklin Templeton, recently penned a piece for the firm’s Beyond Bulls and Bear blog about how alternative investments are seeing renewed interest, and how they can help portfolios reduce volatility and increase income and growth prospects.

2022 was the first year in the past century that stocks and bonds were both down double-digits. And, the last time that both asset classes had negative returns was in 1931 and 1969. Of course, 2022 was a unique year as the global economy battled with rising rates, spiraling inflation, growing recession risk, and a myriad of geopolitical threats. 

It was quite painful for most investors and advisors whose portfolios are in stocks and bonds. But, it’s led to a surge in interest for alternative investments. Many outperformed in 2022 and led to reductions in portfolio volatility while helping boost portfolio income and serving as a more effective inflation hedge. 

Until recently, many alternatives were only available to large institutions. However, access to these investments has been democratized due to technology and regulatory changes. Therefore, advisors should be open to these investments especially if economic and market conditions continue to be challenging. 

Finsum: Following the events of 2022, advisors and investors should consider including alternative investments in their portfolio given their ability to reduce volatility and boost income.