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Volatility: A Constant in Changing Markets

Given unprecedented access to news and information, investors see markets react in real time, if not well ahead of actual events. The fluid interplay between economics, geopolitics, climate, health, and investing creates a sometimes dizzying intraday or week-to-week volatility. It can be exhausting to jump from peak to valley and back again — even more so when your money is on the line, moving with the headlines.

What can investors do?

With little sway over the causes or timing of volatility, investors can seek to limit its effects by creating a more balanced portfolio. Diversification offers a powerful, proactive tool. 

Just like the old adage “don’t put all your eggs in one basket,” investors can manage their risk by creating different “baskets” of investments. Practically speaking, this means:

  • Investing across different sectors or in a balanced index-following exchange-traded funds (ETFs) rather than holding a single stock or particular sector. 
  • Diversifying across different asset classes like bonds, fixed income securities, or precious metals to your portfolio.
  • Seeking out investments that do not necessarily move with the equity markets, including real estate, art, and other less liquid investments where prices don’t typically swing based on today’s news.

This is where alternative investments come in. 

Alternative investments as diversification

Alternative investments are simply investments outside of the stock, bond or foreign exchange markets. With price movements, if any, often uncorrelated to the markets, alternative investments create the potential to offset price drops in one security with price gains or yields in another. 

This is particularly true in private credit, a multi-trillion dollar asset class that provides a hedge against volatility along with all-important asset diversification. Private credit markets can also offer:

  • The potential for higher yields by investing in smaller or emerging institutions.
  • Shorter-duration investments (compared to many other publicly offered fixed income asset classes) that make it easy to adjust your strategy as market conditions change. When the term of one investment completes, you can choose something different.
  • The protections that come from securitized asset flows, a typical structure underpinning many structured private credit investments, and utilized by Percent.

Caution always applies to alternative investments, just as with any other investment. These are not risk-free investments, and you can lose some or all of your initial investment. In certain scenarios, or for some duration, even uncorrelated assets may exhibit correlated movements with the broader market. 

With that in mind, the rewards of higher yield over relatively short periods of times can be significant, giving investors an important option for creating a more balanced portfolio that, in general, is expected to deliver performance even in volatile markets.

Accessing private credit investments

The private credit markets are expanding rapidly and are projected to increase by 11.4% annually from $848 billion at the end of 2020 to $1.46 trillion at the end of 2025. Only large institutional investors had access to these opportunities until platforms like Percent offered them to all accredited investors. With Percent’s efficient, technology-driven marketplace creating transparency for everyone, any accredited investor can easily invest in private credit. 

Since 2018, thousands of investors use Percent to diversify their portfolios, investing more than $500 million in private credit deals. Sign up to explore the diverse range of opportunities available from our issuers, and get up to $500 when making your first investment. 

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