Alternative Investments

by Darwin on May 2, 2011

Most investors are familiar with the common asset classes in the marketplace today. Stocks, bonds, and mutual funds are the traditional assets that most investors have heard about. They are recommended by websites, magazines, and financial professionals. If you checked the retirement accounts of most investors, most of them would be invested in these three assets classes, or holding cash. While these asset classes are important, and should be a large portion of your portfolio; there are other investment options available to investors that they may be overlooking. Let’s take a look at a few of them.

Hard Assets

Hard assets have a place in the portfolio of investors because they are typically inversely correlated to traditional assets. During the last big recession, assets like gold held up well, while stocks and bonds were crashing. For this reason investors should allocate a small portion of their portfolios to hard assets. Gold, silver, and platinum could represent as much as 10% of the portfolio of individual investors. This way you can have stable returns, while the sky is falling all around them. Hard assets are also an effective hedge against inflation. Precious metals have risen dramatically in recent years because of feature of the rise in inflation. It is possible to put hard assets in retirement accounts. APMEX is one such company that sells gold and silver products that you can store in your traditional brokerage account. APMEX even has a precious metals IRA that can be stocked with gold and silver bullion. It’s a nice way to get defensive against big market swings.

Agricultural Commodities

Soft commodities are another asset class that should be looked at. Soft commodities come from the ground often perform as well as hard commodities that have to be mined for. Commodities are another type of alternative investments that do well during inflationary times. You can invest in agricultural products which have been on a tear recently. Products like cotton, sugar, and cocoa have done quite well as speculators have bid up these assets. They will always be in demand as these products are staples of the American life.

Natural Resources

The good thing about natural resources is that there is a finite supply which makes them so valuable to investors. Any concerns about the level of supply of a natural resource and natural resource prices are off to the races. Take crude oil for an example. Energy has been a high growth area and will continue to be for the foreseeable future. You have seen how crude oil has taken off since the troubles in the Middle East started occurring. Investors can buy crude oil futures, or invest in the asset itself through an ETF (exchange-traded fund). There are lots of alternative energy investments like solar power which could benefit from a change in energy demand. All of these alternative investments offer investors greater diversification, and should be part of your asset allocation. While alternative investments should not make up the bulk of a portfolio, they can contribute to the growth of an investment portfolio even as a small holding. You can either purchase these alternative assets directly, via futures, or by ETFs and ETNs are available.

This is a guest post from Investor Junkie where on his web site he talks alternative investments, and reviews the top stock brokers.

{ 6 comments… read them below or add one }

101 Centavos May 3, 2011 at 7:22 am

One of my favorite subjects. You could also say that a good tool is also a hard and productive asset.


retirebyforty May 3, 2011 at 1:03 pm

I need to invest in some of these alternatives. Most of my investments are in equity and real estates. I think once my equity portfolio hit a certain number, then I’ll start putting some money into alternative investments. Good post!


Ken Faulkenberry May 3, 2011 at 5:12 pm

Thank you Darwin for the excellent description of the different Alternative Investments. Unless I can find a dominant blue-chip at a reasonable valuation, I love ETFs for each of your categories. ETFs provide diversification and an easy way to participate in rising alternative investment markets.
Ken Faulkenberry


Squirrelers May 4, 2011 at 1:07 pm

Definititely a good idea to consider correlation when looking at different investments. This is why I’ve thought that gold/silver are good to own as a small % of overall portfolio value, even though they’re essentially speculative investment vehicles. Thing is, the current spot prices seem sky high. Maybe there are good/bad times to buy in if not already invested.


krantcents May 4, 2011 at 4:27 pm

Over the years, I collected a variety of antiques, but I never thought of it as investment. Investments are bought and sold! I expect to sell an antique (over 100 yrs. old) silver candelabra soon. First, I need to have it appraised. I probably will realize it is an investment when I see the proceeds.


Justin @ Money Is The Root May 9, 2011 at 12:35 pm

I have thought about investing in hard assets for quite some time, but I should look into it more. I see a lot of push towards ETF’s these days.


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