Alternative Investments?

[yakers]

I have the usual asset collection of stocks, bonds, cash (AA=40% stock, 45% bond 15% cash VG MMF) and we own our own home. In our stocks are some REITs. It occurs to me that it would be good to diversify a bit more but no other asset class seems desirable and accessible, espically as I would probably want to DCA into it. Commodities do not seem compelling, the few who I know own timberland are barely positive one a long period of time. Gold would be OK but the handling costs are too significant. I do have friends who bought a rental property but this is a almost full time hobby for the handy not quite what I want to do in retirement. I know the really wealthy have more options but what can an average investor do to diversify past stocks/bonds?

 

[COcheesehead]

Closed end funds, sell on eBay, flip something you know about, start a side gig.

The things, in order of impact, that created the most wealth in my life:
1. Starting a business
2. Saving until it hurt
3. Buying a commercial property
4. Investing in stocks and bonds

Almost everything else is trivial.

 

[derick]

Same here for some time. Usually I invest in long term stock and bonds, but lately I have been trying my hands on offshore trading and investments with Forexchief broker. Anything investment is fun.

 

[Alan]

Foreign Exchange trading?

Not sure where gains and losses reported on the tax return.

 

[DrRoy]

I get your issue, but any other alternatives come with other trade-offs that make them problematic for various reasons. Anything else that I tried (like a hedge fund) I eventually got rid of for the usual suspects.

 

[pb4uski]

Foreign Exchange trading?

Not sure where gains and losses reported on the tax return.

Schedule D, just like any other capital gain (I think).

 

[cooch96]

Baby bonds, preferred stocks, and options come to mind. I’m not sure how accessible the futures market is for amateur investors. I started to research options when I was first self-educating myself on investing. I stopped once I realized how much more involved the process is.

Gold, coins, classic cars, oriental rugs, chippendale armoires, fancy watches, and things of that ilk are usually speculation and fun hobbies; wealth diversification at best. I would never consider them investments since they don’t grow or create additional value.

 

[Mdlerth]

You will know your operation better than any Wall Street analyst

Have you considered investing in yourself? Perhaps you could cultivate a skill which could increase your earning power.

Sure, I know this is a retirement - i.e., not-working - forum, but any number of members here do some part-time or side activities to supplement their cash flow. If it's purely discretionary, not regimented, and something you enjoy enough that you'd even do it for free but also are happy to accept remuneration for, then it doesn't count as w*rk.

For example, I have one friend who is a top researcher for NASA but also plays guitar in a band. Another is a dentist who does custom cake decorating (and no, they're not sugar-free! ). They are highly-compensated professionals, but they also love their hobbies and get paid for them.

 

[OldShooter]

... what can an average investor do to diversify past stocks/bonds?

One of the wrap-up slides in my Adult-Ed investing class says this:

Investing is boring. If you're not bored, you're doing it wrong.
​

That said, if you want to persist there is a decent book "All About Asset Allocation" by Richard Ferri. He didn't move me to change from my boring old portfolio of a few passive equity mutual funds and some bonds, but YMMV.

 

[audreyh1]

Why would I bother with “alternative investments” especially if they are newish and not easily understood or have short track records? I’d have to see long histories to even begin to determine whether they truly offered diversification and whether it was worth the additional risk.

 

[Alan]

Schedule D, just like any other capital gain (I think).

I don't think so as you don't really have any assets. The favorable tax rates for capital gains are to encourage folks to invest in property, stocks and bonds.

I think it is taxed as regular income and reported on line 21 of Schedule 1 as "Other income".

 

[Bir48die]

I have been invested in midstream and downstream MLP's for over 25 years. Those I don't manage on my own. Have had anywhere from 40% of my portfolio to now 20-25%. Very good income stream. They can have their share of volatility

 

[CyclingInvestor]

I have owned some of Brookfields yieldcos BEP and BIP for about a year now, and have followed them for much longer. They are LPs, not MLPs, and generate no UBTI so are safe for IRAs, even though they issue K1s, not 1099s. BEP owns renewable power assets (dams, wind farms, solar farms) and BIP owns basic infrastructure (toll roads, railroads, ports, pipelines, cell towers, etc) around the world. They target dividend growth of around 5-9% per year. No taxes are withheld if they are held in IRAs (where all mine are) due to tax treaty with Canada.

 

[triangle]

You mentioned bonds and there is a lot of variety within the overall debt space. You might consider adding a very small position in BDCs (business development companies) but they are hard to analyze and understand IMO. Then there are lots of different countries/regions to help spread out investment risk.

Maybe you are asking what are some less correlated asset vehicles? I am not sure what those would be, except I would consider commodities as a way to hedge against inflation more than I would gold, but that is my personal bias. I also might consider timberland to be more like real estate. But when investing in companies that are heavily commodity based, take Rio Tinto (RIO) as another example, I am not sure how much the market values them as a mining enterprise versus the commodity they are producing.

 

[Sunset]

I have owned some of Brookfields yieldcos BEP and BIP for about a year now, and have followed them for much longer. They are LPs, not MLPs, and generate no UBTI so are safe for IRAs, even though they issue K1s, not 1099s. BEP owns renewable power assets (dams, wind farms, solar farms) and BIP owns basic infrastructure (toll roads, railroads, ports, pipelines, cell towers, etc) around the world. They target dividend growth of around 5-9% per year. No taxes are withheld if they are held in IRAs (where all mine are) due to tax treaty with Canada.

Wow.... what great stocks this year, 52% & 78% increase. You should have told us LAST year.

 

[pb4uski]

I don't think so as you don't really have any assets. The favorable tax rates for capital gains are to encourage folks to invest in property, stocks and bonds.

I think it is taxed as regular income and reported on line 21 of Schedule 1 as "Other income".

Yes, found a cite... ordinary income but special rules for futures.

https://finance.zacks.com/tax-advantages-forex-traders-10457.html

 

[Alan]

Yes, found a cite... ordinary income but special rules for futures.

https://finance.zacks.com/tax-advantages-forex-traders-10457.html

Good sleuthing - thanks for that.

 

[PoorOldCountryBoy]

I have the usual asset collection of stocks, bonds, cash (AA=40% stock, 45% bond 15% cash VG MMF) and we own our own home. In our stocks are some REITs. It occurs to me that it would be good to diversify a bit more but no other asset class seems desirable and accessible, espically as I would probably want to DCA into it. Commodities do not seem compelling, the few who I know own timberland are barely positive one a long period of time. Gold would be OK but the handling costs are too significant. I do have friends who bought a rental property but this is a almost full time hobby for the handy not quite what I want to do in retirement. I know the really wealthy have more options but what can an average investor do to diversify past stocks/bonds?

You may want to check out the performance of institutional alternative investments. It ain't pretty. Probably the best no-brainer for the average person is a small percentage in REITs and a general commodity fund, but don't expect a lot of upside. And if you can't explain in a couple sentences what you are buying, please don't do it.

Berkshire Hathaway was a great hedge fund-style investment, but given the size of it and the ages of the principal investors, I think its days of outperformance are long over.