Alts

[gcgang]

Anyone been using "alternative investments" in their asset allocation?
http://www.investmentnews.com/article/20121017/FREE/121019950

 

[obgyn65]

No, sorry.

 

[Bestwifeever]

Your link requires registration at the site, GC--maybe you can quote a paragraph from it to explain what this term means?

Here is a recent discussion here that may touch on what you are asking about: http://www.early-retirement.org/forums/f30/alternative-income-producing-assets-63381.html.

I am sure if there is an investment option out there, someone here has tried it, and even surer that some people here will have an opinion about it!

 

[gcgang]

Sorry about the link.
Exploring Alternatives: Practical Approaches for Building Better Portfolios
Alternatives are defined as an asset class or strategy that performs differently than stocks and bonds.
The objective in using alternatives is to lower portfolio risk.
One reason use of alts has increased is the " return-less risk" bonds and cash now offer.
Although Morningstar has tried to offer analysis of mutual funds in the alt space, it's hard to put in a box, things that are outside of the box.

 

[Animorph]

Most of the strategies I've seen, just through Morningstar and WSJ, are more bond like, lower expected return than equities but also lower volatility. They might make an interesting bond replacement, but I'm normally all equities so the common alternative investments haven't appealed to me.

 

[haha]

Overall, the best alternate investment is likely cash. Government and wall street want us to be reaching, taking on more and more risk, because we seem to have no choice.

But there is always the choice to wait it out. I started investing seriously in 1973, and I have yet to see a time when something worthy did not present itself in a 3 year or so window. Some opportunites were better than others, but always something fairly low risk with decent reward possibilities came along.

There is a misconception that we must "put our money to work". The reality is that we must put our brains to work, and be sure we have funds available to back our good ideas when they do come along.

Ha

 

[RonBoyd]

I will investigate this a little more since there may be something to this ( and by that I don't mean anything positive). The article was extremely general and after reading it still did not have a clue what they were talking about exactly -- there were no specifics mentioned. Nevertheless, this single sentence was convinced me to investigate further:

The biggest barrier to alternative investments appears to be the complexity of the products, with 48% of the respondents saying they have little understanding of alternatives, and 69% saying they will only invest in products that they understand fully.

Anything that the crowd is saying bad things about requires my attention... I'll probably want in just on general principles.

 

[Nords]

I will investigate this a little more since there may be something to this ( and by that I don't mean anything positive).

In general, Larry Swedroe's book on the subject ("The Only Guide to Alternative Investments You'll Ever Need: The Good, the Flawed, the Bad, and the Ugly", http://www.amazon.com/Only-Guide-Al...351481051&sr=1-1&keywords=Swedroe+alternative) will affirm your instinct to run away screaming. It's been out for a few years and I bet library copies are everywhere.

I think there were one or two asset classes that didn't actually suck money out of your portfolio. In most cases the best you could hope for was zero after-tax after-inflation returns with reduced overall portfolio volatility and (once every decade or so) a brief period of outsize gains.

One read was enough to immunize me.

 

[RonBoyd]

In general, Larry Swedroe's book on the subject ("The Only Guide to Alternative Investments You'll Ever Need: The Good, the Flawed, the Bad, and the Ugly", http://www.amazon.com/Only-Guide-Al...351481051&sr=1-1&keywords=Swedroe+alternative) will affirm your instinct to run away screaming... One read was enough to immunize me.

Thank you. I get to save time and money. That rarely happens to me except by accident.

 

[gcgang]

Thanks for the book, Nord.
I've tried to build a diversified portfolio, and have used gold, developing market short term bond/currency mutual funds, resources and real estate in my " alt" bucket.
I sometimes think of "global allocation" mutual funds, such as MALOX, IVWAX, PAUPX and even WASAX as alts, although I think they are just more flexible versions of balanced funds, and are still pretty strongly correlated with stocks and bonds.
Just trying to find ways of taking the roller coaster of 100% stock, and the negative real returns of cash and bonds, out of my future income streams.
I'll be interested in what Swedroe has to say.

 

[Nords]

Just trying to find ways of taking the roller coaster of 100% stock, and the negative real returns of cash and bonds, out of my future income streams.
I'll be interested in what Swedroe has to say.

As legendary investor UncleMick has advised on this board many times:
"Psssst-- Wellesley. Heh heh heh."

 

[obgyn65]

ok. From this definition, I have been using alternatives. As discussed in other threads, I have most of my savings in CDs, munis, and this year I have begun to buy deferred annuities. I expect to learn more about funds and equities when I FIRE and use them, hopefully later this year. No time for this now.

Sorry about the link.
Exploring Alternatives: Practical Approaches for Building Better Portfolios
Alternatives are defined as an asset class or strategy that performs differently than stocks and bonds.
The objective in using alternatives is to lower portfolio risk.

 

[Lsbcal]

I also read Swedroe's book that Nords mentions above. It was an affirmation of my feelings not to stray very far from the standard stock/bond choices.

The closest thing we own to alternatives is Bill Gross's PTTRX Pimco Total Return. Not exactly way out. Here is an interesting link showing how the funds assets have varied over the years:http://investments.pimco.com/Market...rn_Asset_Allocation_ProductChart_PPC40052.pdf There is a decent helping of developed market non-US bonds plus investment grade in it.

 

[Finance Dave]

I think it's good advice not to invest in things you don't understand...so either avoid them or research them fully.

 

[brewer12345]

To the extent you can find, understand, and like registered investments which are "alternative," be my guest. I happen to like (in small doses) MERFX and ARBFX as a diversifier, as an example. However, I strongly encourage one and all to stay away from anything which is not registered and on-shore. This means no hedge funds, venture capital funds, Venezuelan Beaver Cheese Futures funds, etc. Retail investors are way, way out of their depth in those vehicles and you would not even know you were making a bad choice until it was too late.