Investing/Asset Classes/Alternatives

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Alternative Investments

Investors are always looking for ways to diversify their investments in asset classes that do not move up and down in lockstep with the pirimary asset classes: Stocks, bonds, and real estate. When stocks are going down they want investments that are going up to offset some of the losses. This is a worthwhile quest, but you have to be very careful:

  • A large number of alternative investments have been scams
  • The assets may not perform the way you were told they would perform
  • You may have problems with valuations, maintenance, and storage
  • It takes accurate information and specialized expertise to make the right decisions

If you do not have that expertise, you better be sure you have a trustworthy source for information that impacts your decisions.

Precious Metals

Gold, silver, and platinum are three popular investments that are also considered effective hedges against inflation. There are active exchanges for buying and selling metals so pricing is not an issue. You can in gold mines, bullion, and coins. Or, you can invest in a mutual fund that makes the buy/sell decisions for you.

Collectibles

Paintings, carved ivory, antique cars, and Persian rugs are examples of collectibles that attract large amounts of investment dollars. There are numerous issues with these investments: Accurate appraised values, storage, liquidity, and the exchanges where you can buy and sell collectibles.

Derivatives

There are stocks and bonds and there are synthetic investments that duplicate the performance of pools of stocks and bonds. For example, an index fund (S&P 500) may be a pool of 500 stocks.There are also exotic investments known as derivatives. They are not stocks and bonds, but computer generated models that track the performance of underlying securities.

Oil & Gas

You can invest in limited partnerships that explore for oil and gas (speculation) or you can own producing oil and gas wells (safer). Your best bet is to buy the stocks of publicly traded oil companies that explore, produce, refine, and distribute oil and gas products.  

Paladin says.....

There are two old rules in investing. First, "If you don't understand it, don't invest in it". This is particularly true for derivatives and other types of esoteric investments. Many of these investments are extremely complex mathematical models that may or may not work. Even the salesman may not know what causes their market movement. The second rule is "If it is too good to be true, it is not true". Many of these investments can be sales scams. 

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