The stock market is the default sector for investment, but it's lost value and stability. Bond markets are volatile, and cash, while strengthening, has been in a funk for the past four years. These three investments are the standards, but their behavior has shown that any investor overlooking alternative investments is missing out on real profit.
Alternative investments include hedge funds, but also cover futures, real estate, commodities and derivatives.
These sectors all share characteristics that earn them the name alternative:
- they tend to have high minimum investments
- less regulation
- less publishing or advertising of performance data
- high fee structure
Many alternative investments are managed like mutual funds (hedge funds, private equity funds). And the biggest advantage? Alternative investments don't follow the market: commodities tend not to, and funds are designed not to. It's a well established correlation. So they're excellent insurance against market downturns. Many managers recommend alternative investments should be around 10 percent of your portfolio.
The structure of alternative investments can turn away small-cap investors, but commodities like precious metals are still available.