If you have the traditional weighting of 60 percent stocks and 40 percent bonds, you might want to slice off 20 percent of the total for alternative assets, says Anderson. You can peel that money off your equity holdings to take a more aggressive or defensive stance through alternative assets, depending on market conditions.
Gold represents perhaps the hottest alternative investment now, with its price rising more than fivefold since the beginning of 2000. It recently approached $2,000 an ounce. Experts see several reasons for the precious metal to keep rising.
"Central banks around the world, particularly in emerging markets, are saying, 'We've bought enough Treasuries now. We will put some of our reserves into gold,'" Shelton says. Central bank gold purchases in the first half of this year already have surpassed the total for all of 2010, according to the World Gold Council.
In addition, emerging market countries have a historical mistrust of paper currency, creating a natural demand for gold there, Litchfield says. And he sees good reason for that stance now.
"Currencies are being debased around the world by loose monetary policy, so gold is buying more and more of everything else. You can't expect the Fed to expand its balance sheet from $800 billion to $3 trillion without consequences -- and there will be," Litchfield says.
Options and futures
Some advisers wax enthusiastic about managed futures funds. These funds use derivatives -- mostly futures and options -- to make bullish and bearish bets on everything from stocks to commodities. The Barclay CTA Index of managed futures funds gained an impressive 14 percent in 2008, while the Standard & Poor's 500 index plummeted 37 percent.
But while the funds have produced annualized returns of 11.4 percent since 1980, their performance can be quite volatile. The Barclay Index fell 1.4 percent in the first half of the year, while the S&P 500 climbed 6 percent.
Long-short funds, which take long and short positions on stocks and other assets, represent another option. Even during bear markets, equities can rise for a time. "Look at Japan," Shelton says. "There were numerous monstrous rallies during the long decline."
A long-short fund obviously gives you the opportunity to profit from bull and bear markets. "That's a decided advantage in higher risk markets," Ghriskey says.
However, their success depends almost entirely on the investment prowess of a fund manager.