Is the alternative life for you?

We talk a lot about alternative investments (we even got an iconic Canadian alt rocker talking about them — see below) because, for the right clients, we believe they can make a meaningful impact on long-term wealth.

Of course, alternative assets are not for everyone. Here’s a brief quiz to help you decide if the alternative life could be right for you.

Quiz: Are You Ready for Alts?

1. Do you think you’ll need access to a significant portion of your assets in the next three to five years?

If the answer is yes, alts are probably not right for you. Alternative investments tend to have longer investment cycles than many assets. Returns don’t materialize overnight, so you need to have the time to wait for them to fully mature. Plus, you can’t liquidate your holdings in a moment’s notice the way you can with some other investments. There are limited withdrawal opportunities that require advance notice.

If the answer is no, you might be ready for alts.

2. Are you comfortable with risk?

If the answer is yes, you may be ready for alts. Alternative investments like private equity tend to come with higher risk, but that higher risk can also come with a higher reward.

If the answer is no, it could go either way. Private credit is less risky than stocks but has produced similar returns — 8.8% a year over the last 15 years. How much of your portfolio you may want to dedicate to alternatives depends on the risk you’re comfortable with. Conservative investors might want smaller allocations (or none at all) compared to someone invested in a growth portfolio.

3. Are you interested in more diversification?

Trick question! For one thing, everybody should have a diversified portfolio. It’s how you limit the bad times. But also, different alternative investments provide different levels of diversification. Private equity offers limited diversification because its risks are similar to that of public equities. Private credit, however, provides medium-to-high diversification and tends to respond well to periods of rising interest rates (since payments are based on floating-rate loans).

4. Are you ok with some tax gymnastics?

If the answer is yes, you may be ready for alternative investments. Private credit’s returns come predominantly from interest income, which is taxed at a higher rate than typical capital gains, making them tax inefficient. (That makes private credit an excellent option to hold in a registered account.) Private equity returns are expected to come mostly in the form of capital gains, which are taxed more efficiently. They’re more suitable to hold in a non-registered account, but it’s still typically best to stick to registered accounts.

If the answer is no, you still may be ready for alts, but you’re probably going to want our advisors to guide you on the tax part.

For years, pension funds and other institutional investors have benefited from alternative investments. We think more investors deserve the same investment access. That’s why we created our own institutional-grade fund — without the institutional-grade minimum investment. At $10,000, our minimum allows a broader range of investors to benefit from the potential returns and diversification alternative assets offer. You do have to have at least $100,000 in assets with Wealthsimple to qualify; for many clients, that can be achieved by consolidating your retirement accounts with us.

If you’re interested in investing in alternatives, head to the app to apply for an account. We’ll walk you through the requirements, then work one-on-one to confirm your eligibility and the maximum allocation we recommend based on your unique circumstances. And if you’re not interested, we hope you’ll enjoy the video below anyway. There’s a cute dog, if nothing else.

Alt Rocker Bif Naked on Alternative Investments

What’s so great about alternative investments?

If you love advanced investing and the 90s, we have a treat for you: alt rocker and Canadian icon Bif Naked (and her dog) will teach you what alternative investments are, what kind of returns they offer, and how to figure out if they belong in your portfolio.