We have all been taught that “the higher the risk the higher the return “. This was probably true 10 years ago. Today the smart money maximizes the return whilst limiting the down side.
Today, the informed investor has an investment portfolio, ideally made up of a balanced portfolio of listed equities, property, interest bearing instruments such as bonds, and at least 20% in a portfolio of alternative investments.
Alternative investments is where the investor can achieve positive Beta. Beta is the measure that the investment return outperforms the market return. Generally, ones investment portfolio tracks the market performance, but by incorporating alternative investments ones portfolio has the potential to outperform the market.
Alternative investments can include private equity, venture capital. currency indexes, gold coins to name a few.
“Not only is an investor getting exposure to investments in private companies, but the investor is entitled to a Section 12J tax allowance. The investor is allowed to deduct the full amount of the investment from his/her taxable income, assuming that the investment is in his/her personal name or his trust. This allows a 45% tax write off in the year in which the investment is made, this greatly reduces the risk in favour of the investor,” says Miller.