investment strategies

 

This quarter, the economy grew at 1.9%, which is lower than the growth last quarter of 2.0%. The economy is slowing down and, in this scenery, investors are figuring out new investment strategies to take care of their portfolios. Don’t panic, leave anxiety out of the picture, we have some ideas for you.

 

New investment strategies to take advantage of this market moment

 

Economists say a recession is coming, but actually, the market is doing just well. How can you take care of your capital?

 

  • The endowment model

This is an investment strategy that is not directly aligned with market behavior. So if a recession comes, it promises higher returns and fewer risks. Among the options here we can find private credit, real estate and private equity. This is an approach that will perform better in a not so promising market.

 

Types of endowment investments

  • Venture capital is when you see potential in a startup and benefit from its growth over time.
  • Private equity is when you invest in a more mature company with a growth strategy. 
  • Private credit is when you provide credit for individuals or companies in debt, usually with high risk and profit.

 

Pros

  • The expected returns are higher.
  • Depending on the investment, you can receive interest payments.

 

Cons

  • The lockup, that period in which you won’t have access to your money, is longer than in other cases. It typically lasts between five to fifteen years, sometimes more.
  • Sometimes you can be asked for more money at certain points, depending on the kind of investment.
  • Usually have high minimums of investment, from $250,000.

 

As in any private investment, the risks are bigger but the gains can also be more. David F. Swensen, endowment fund manager, American investor and philanthropist, says:

 

“Market participants willing to accept illiquidity achieve a significant edge in seeking high risk-adjusted returns. Because market players routinely overpay for liquidity, serious investors benefit by avoiding overpriced liquid securities and by embracing less liquid alternatives.”

― David F. Swensen, Pioneering Portfolio Management: An Unconventional Approach to Institutional Investment, Fully Revised and Updated

 

  • 60/40 investment portfolio

With more liquidity than the endowment model, this option is composed of a fixed income plus equities. 

 

Pros

  • Liquidity. In any unpredictable life event, you can count on your money.
  • In a low inflation scenery, it’s less risky than the endowment model.

 

Cons

  • If inflation goes above 3%, you’ll lose money in the long-term.
  • The expected returns are usually not that high as in an endowment model.

 

The decision upon which kind of investment you can make depends on your expertise, your preference and your tolerance. Of course, we suggest if you go for an endowment option, set aside some cash. For example, if you invest in real estate, It’s preferable to ask for financing but still count with some liquidity to move around. The important thing is that you rebalance your portfolio on a frequent basis. Things change fast and you can’t lose sight of opportunities. If you pay attention to these last suggestions on investment strategies, you’ll be closer to achieving more.