Discussion Assignment Example | Topics and Well Written Essays - 500 words - 16

Discussion - Assignment Example Real asset lower risks of portfolio and is able to guarantee better returns in the future. Real asset provide diversification opportunity in investment. According to (Brigham & Houston, 2001) the value attached to real asset is a bit stable putting it in the investment portfolio along with shares diversification on the portfolio is achieved. This help in case the value of shares dwindles then one is able to still get returns from the real assets. The cost of maintaining real assets makes it expensive. The real asset needs to have an insurance cover against possible risks. This additional expense makes it too expensive to invest in as compared to bonds and share they don’t have such additional expenses. The unit cost of any real asset is expensive thus limiting the number of people who can invest in these assets. Unit cost of share is normally lower and a good number of people can afford to invest in them. This form of investment is different from the common traditional way of investment i.e. cash, bonds and shares (Hirt & Block, 2012). This form of investment includes hedge fund, real estate, private equity, exchange funds and managed futures. This form of investment doesn’t have a fixed-income. Alternative investment is less transparent and complex this feature makes it difficult to less trained investors because of its complexity in restrictions. Alternative investment has the capability to improve the risk and return trade-off. The low correlation between the alternative investment and the conservative known form of investment enhances the diversification of the portfolio thus reducing the risk associated. Another characteristic that makes alternative investment be able to diversify the portfolio to reduce risks is the ability to be more flexible enabling an investor to invest in a set of opportunity that can give better returns. Private equity is a form of