The market’s volatility has been unsettling, causing investors to seek diversification with alternative investments — so-called because they are designed to provide a counterweight to traditional investments like stocks, bonds and property. Commodities such as gold and silver, which have taken off in price in the last year, are examples of alternative investments.
InvestmentNews surveyed 404 financial advisers last month to determine their top alternative investment choices. Here are the most popular:
- Real estate investment trusts, or REITs, 76 percent of advisers chose this investment. They can be private or public, and are required to distribute 90 percent of their taxable income to shareholders.
- Commodities, 52 percent of the votes. These can be “soft” (meaning they are grown, as in agriculture) or “hard” (mined out of the ground, like copper and iron).
- Absolute return funds, 42 percent. So-called because these funds are not measured relative to a benchmark, but are measured on the performance of a particular asset.
- Precious metals, 34.4 percent. Technically also a commodity, these are the high-price metals like gold and silver.
- Managed futures, 26 percent. These are portfolios managed by licensed commodity trading advisers who use a proprietary trading system and can employ both long and short tactics.
- Hedge funds, 14 percent. Hedge funds use a variety of long and short investment tactics and a broad range of asset classes.
- Private equity, 13.6 percent. They’re called private because they are stocks of companies that are not traded on the market and can include venture capital and leveraged buyouts.
None of these alternative investment choices is straightforward, and each carries its own risks and rewards. So if you’re thinking of diversifying your portfolio, make sure you fully understand the investment first.
Are you diversifying your portfolio with something other than stocks, bonds and property and if so, how have you chosen to do it?
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