About Marketable Alternative Investments

Any investor knows that diversification is their friend.  Individual investors often have portfolio holdings such as traditional stocks and bonds.  As the size of your investment holdings grow, investors may find it wise to mix alternative investments into their portfolio.  Alternative investments are often characterized by complex, illiquid, and often mis-priced securities.  These can be bundled in such vehicles as hedge funds, managed futures, commodities and derivatives contracts.

Before making a decision, talk with your financial advisor about what investments are appropriate for your risk tolerance as you diversify your portfolio. 

Consider Tangible Asset Investments

These include commodities and currencies, which may be bought and sold individually, or in baskets.  A firm grasp on global economics and the political climate is extremely important if you are managing your own tangible asset holdings.  Diversification within this asset class is another important key to properly hedging against realized losses.  It is possible to participate in this asset class by investing in a mutual fund that targets infrastructure, natural resources, and distressed securities.  If you choose not to employ mutual funds in your tangible asset investment strategy, be certain to select more than one individual asset in order to properly diversify within this asset class.

Consider Alternative Investment Strategies

The most typical way to achieve this is to invest in mutual funds.  Mutual funds are run by managers and tend to have diversification built in.  Be certain to read the mutual fund prospectus for details before investing.  The prospectus will detail the mutual fund’s holdings, and will also indicate fund goals.  Also consider reviews available through a number of independent research companies.  Independent research will often detail information on the fund manager as well as fund performance.

Consider the Risks

Alternative investments – particularly single commodities – can be extremely volatile.  Volatility can mean big gains, but can also mean big losses.  If you are managing your investment yourself, then you open yourself up to this risk.  The alternative to managing your investment on your own is to invest through a hedge fund manager.  Though expensive, hedge fund managers know how to even out the volatility and lock in gains.