Originally Posted: October 4th, 2010
What if you could make an investment that was in no way tied to the stock market’s performance in the next 10 years? Such an investment could do well during extended declines in the stock market and do well if there is a market recovery. The investment could also perform poorly in all three cases, but such an investment is narrowly impacted by the stock market. This ability to achieve returns independent of stock market performance is the essence of alternative investments.
According to CFO Magazine, “Alternative investments, such as hedge funds, private equity, and real estate are slowly gaining sway with corporate pension fund managers. A recent survey by J.P. Morgan Asset Management of about 150 corporate pension plans found that alternative investments constitute about 11% of their assets, on average, and that the plans intend to increase that allocation to 14% within the next three years.” (October 1, 2010).
Not only do alternative investments give plenty of interesting options to invest into but there are some smart and sophisticated people making a lot of money with these investments. At least 61 alternative investments titans crowd this year’s Forbes 400 list of the wealthiest Americans. And the most well-off among them-the 18 that made Forbes’ top 100-for the most part got richer over the last year.
I would highly recommend speaking with your financial advisor to make sure you have a well rounded and diversified portfolio which includes equities and bonds. However, it would also make sense to speak to your advisor about incorporating alternative investments into your portfolio.
Here is a list of some of the alternative investments you can make:
1) Gold – Gold is a good hedge against inflation, and a weak dollar. Between 1976 and 1980, Gold appreciated 369%. To compare, Gold has appreciated 109% from 2006 – 2010. Nowadays, you do not have to buy the gold bullions to get on the bandwagon. You can buy through Exchange Traded Funds such as SPDR Gold Trust (NYSE: GLD) or via options and derivatives.
2) Real Estate: If you want to take advantage of the opportunities in commercial real estate, but don’t have the expertise of buying and managing commercial real estate, a real estate investment group may be the solution for you. The sponsor company will buy or develop a property and then allow investors to buy into the company (thus joining the group) typically from $50,000 to $500,000 per investor. The sponsor company operating the investment group collectively manages every aspect of the property, such as acquisition, property management, leasing, asset management and disposition. The sponsor is responsible for distributing the cash flow and profits from the proceeds of the sale of the property to the investors, according to binding legal documents. If buying REITS, or owning an individual property is not for you, but you want the benefits of real estate, the power of group investing is worth looking into. Please see http://www.powerofgroupinvesting.com for more information.
3) Wine: Yes, wine! Today the wine market has become as sophisticated as the commodity itself; several indices now exist to track baskets of wine prices. According to wineprices.com, the Fine Wine 250 Index has improved nearly +75%, while the DJIA has been flat comparing returns of the Fine Wine 250 Index against the Dow Jones Industrial Average during the last 15 years.
Now, I am not suggesting that you go out and spend your retirement on a collection of wine, but it could be a great way to store your money in uncertain times. I highly recommend http://www.winebid.com. (I started this company back in 1997 and still love to buy wine from it!)
These are only a few of the many options you have to invest alternatively to the stock market to help boost your returns. In my previous blog entitled: How will Americans build wealth following this recession? , I touched on the Self-Directed IRA. Alternative Investments coupled with Self-Directed IRA’s are a great way for Americans to start taking matters into their own hands to build wealth for their families futures.
Darren Nakos, CCIM
Resort Realty Capital
111 Main St
P.O. Box 630
Frisco, CO 80443-0630