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Alternative Investment Allocation Tool

WHY ALTERNATIVES

Generally, an alternative investment is one that seeks to provide risk and returns that are different than stocks, bonds and cash. In our opinion, an important objective of alternative investing is to reduce a portfolio's risk while maintaining returns over time. Different allocations to alternative investments, funded via various combinations of stocks and bonds, can potentially help accomplish that objective.  

POTENTIAL IMPACT OF ALTERNATIVES

When allocating to alternatives from bonds, as represented by the Barclays Aggregate Bond TR index, the tool shows that the resulting portfolios tend to generate slightly higher returns and higher risk over the long periods of time it measures. Investors should consider that historically, during shorter periods of market stress, interest rates declined and bonds tended to outperform alternatives. Conversely, during previous periods of rising rates, alternatives tended to outperform bonds.

When allocating to alternatives from equities, as represented by the S&P 500 TR index, the tool shows that the resulting portfolios tended to generate similar returns and lower risk over the long periods of time it measures. Investors should consider that historically, during shorter periods of market stress, alternatives tended to outperform equities.  Conversely, during previous periods of strong equity returns, alternatives have historically underperformed stocks.

MANAGE ALLOCATION

1 The sliders in the tool can be adjusted independently to reflect the stock and bond allocations of a theoretical portfolio without alternative investments, and one that includes alternatives.
2 The allocation to alternatives can be made from stocks, bonds, or a combination of both.

RISK CONSIDERATIONS

This reflects index performance and does not represent the performance of any Goldman Sachs product and is not representative of any specific product.

Past performance does not guarantee future results which may vary. Investors should also consider some of the potential risks of alternative investments:

Alternative strategies often engage in leverage and other investment practices that are speculative and involve a high degree of risk. Such practices may increase the volatility of performance and the risk of investment loss, including the entire amount that is invested. Manager risk includes those that exist within a manager's organization, investment process or supporting systems and infrastructure. There is also a potential for fund-level risks that arise from the way in which a manager constructs and manages the fund. Bonds and Fixed income investing involves interest rate risk. When interest rates rise, bond prices generally fall. Leverage increases a fund's sensitivity to market movements. Funds that use leverage can be expected to be more "volatile" than other funds that do not use leverage. This means if the investments a fund buys decrease in market value, the value of the fund's shares will decrease by even more. Alternative strategies often make significant use of over-the-counter (OTC) derivatives and therefore are subject to the risk that counterparties will not perform their obligations under such contracts. Alternatives strategies may make investments that are illiquid or that may become less liquid in response to market developments. At times, a fund may be unable to sell certain of its illiquid investments without a substantial drop in price, if at all. There is risk that the values used by alternative strategies to price investments may be different from those used by other investors to price the same investments. The above are not an exhaustive list of potential risks. There may be additional risks that should be considered before investment decision. 

Traditional Portfolio
Traditional Portfolio
Portfolio with Alternatives
Portfolio with Alternatives
Stocks (S&P 500 TR)
Stocks (S&P 500 TR)
Bonds (Barclays Aggregate Bond TR)
Bonds (Barclays Aggregate Bond TR)
Alternatives (HFRI FoF)
Alternatives (HFRI FoF)
Traditional Portfolio
Traditional Portfolio
Portfolio with Alternatives
Portfolio with Alternatives
Stocks (S&P 500 TR)
Stocks (S&P 500 TR)
Bonds (Barclays Aggregate Bond TR)
Bonds (Barclays Aggregate Bond TR)
Alternatives (HFRI FoF)
Alternatives (HFRI FoF)

ROLLING PERIODS (of the {ROLLING_PERIOD} {ROLLING_YEAR}yr rolling period from {START_DATE} to {ASOF_DATE})

Potential Impact

What impact could adding alternatives have on my client's portfolio?

(median of all rolling periods, annualized monthly data)

Returns
10
%
Traditional Portfolio
10
%
Portfolio with Alts
Volatility
10
%
Traditional Portfolio
10
%
Portfolio with Alts

Frequency

How often might the portfolio with alternatives deliver better results than the traditional portfolio?

(of the historical rolling periods)

Higher Return
100
%
of the time
Lower Volatility
100
%
of the time

Loss of Value in Times of Market Stress

Loss of Value in Times of Market Stress

Traditional portfolios of stocks and bonds have historically seen significant drops in value during times of market stress. Funding an allocation to alternative investments, in whole or in part, from equities may have resulted in less severe declines.

Global Financial Crisis

October 31, 2007 - February 28, 2009

Dotcom Collapse

August 31, 2000 - September 30, 2002

Russian Default

June 30, 1998 - August 31, 1998

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