Benefits of Diversifying Your Portfolio with Alternatives

In recent years, the financial markets have been in turmoil, and many investors have gotten fed up with volatility. If you invest only in the most common types of investments like stocks and bonds, you may have to put up with lagging returns and volatility. Another option to consider is putting your money into alternative investments. Allocating part of your investment money into alternatives can provide you with a number of benefits.

Weather the Storms

One of the biggest advantages of diversifying your portfolio with alternative investments is that you can weather any financial storm that comes along. If all of your money is tied up in stocks and equity funds, it would only take one stock market crash to completely wipe out your investments. However, if you have some of your money in alternative investments like real estate, antiques, Forex or commodities, your capital may be preserved.

Less Correlation

As you become familiar with the investment markets, you become aware of a phenomenon known as correlation. Some investments are highly correlated to others. This means that when one investment does well, the other investment does well. As an investor, sometimes you want to create a portfolio that is not correlated. By putting money into alternative forms of investment, you can get away from correlation. For example, if you put money into gold, its value is not tied to the stock or bond markets.

Serve Dual Purposes

In some cases, alternative investments can actually serve dual purposes. When you invest in stocks or bonds, you cannot really do anything with those stocks and bonds if the financial markets collapsed.

By putting your money into alternative investments, you could have assets that you can use no matter what. For example, if you buy silver and gold coins, you will have something to trade with, no matter what happens in society or in the financial markets. If you invest in real estate, you will have property that you could live in, rent out or sell.

Hedge Against Inflation

Investing in alternative investments can sometimes provide you with a way to hedge against inflation. As the Federal Reserve continues to print more money and devalue the dollar, the purchasing power of your dollar continues to decline. If you put your money into stocks, there’s a chance you could beat inflation, but it doesn’t always happen. With many alternative investments, you can beat inflation because you are purchasing a hard asset. Its value tends to go up over time with the market.

Higher Returns

In many cases, alternative investments can provide you with an opportunity to earn higher returns than what you can get from the traditional financial markets. For example, when you invest in the stock market, getting eight or nine percent in one year is considered to be pretty good. If you put money into alternative investments like Forex, there are ways that you could make 100 percent per year or more.

Alternative investments may not be suitable for every investor, but if these advantages sound attractive, you may want to consider adding some of them to your portfolio.

If you do not know which alternative markets you should invest in, consider hiring a service like Altegris . This type of company can help invest your money wisely in alternative markets.

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