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There are a number of alternative investments that can be made - What Are They?

Alternative investments are those investments that do not involve stocks and bonds. They are an alternative to the volatility of the market and an opportunity to have a greater return. They do not have a connection to the markets and the investor does not have as much risk.

One method of alternative investment is called Venture Capital. Venture Capital is the process of investing in a company that is just starting out and is seen as having the potential to grow substantially over time. The goal is to generate high rates of return over long periods of time. It offers investors better financial returns than stocks, but requires longer period of time to see any return at all. This is because the new company needs time to build up its clientele and thus its profits.

You can also invest in real estate, which is another form of alternative investment. You can do this by buying homes and selling them at a higher price. This works particularly well if you can buy a house for a rock bottom price, do some alterations and sell it at a tidy profit for your self. Again, this does not happen overnight. You have to carefully search the market when buying and selling to be sure you are getting the best deals. This may mean having to wait for the right opportunity to sell.

You can invest in many different things. Even collector's items are a great alternative investment. Items such as rare comics area hot commodity right now, as are certain kinds of trading cards. This is a risk, because you only make a profit if you find a buyer who is willing to pay your price.

Private equity and hedge funds are the most popular forms of alternative investment. Hedge funds pool investors' money and invest the funds in financial institutions. They are not registered and seek profits in all sorts of investments that can make money.

Whatever type of investment you choose, you must be aware that there is always a risk of losing your money, but this risk is minimal with the possibility of large returns on your investment.


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Characteristics of alternative investments such as hedge funds and managed futures include:

  • Flexibility with choices of instruments and markets

  • Nimble trading approaches

  • Sophisticated trading strategies

These characteristics tend to attract some of the most talented money managers, and some of the most savvy investors, to alternative investments.


Alternative investments, such as hedge funds and managed futures generally are distinguished from traditional investments by their regulatory structure, high minimum investment requirements, incentive-fee compensation and the diversity of financial instruments and strategies they employ in pursuit of profit.


The poor recent performance of traditional asset classes has prompted many investors-including high net worth individuals, corporations, endowments, trusts and institutions such as General Motors and Princeton University-to turn to alternative investment strategies to balance their investment portfolios and attempt to increase returns in a variety of market conditions.


Why, during a period of such uncertainty, are so many investors increasing their commitments to alternative investments?


They are seeking strategies that will improve the overall return on their portfolios without exposing them to undue risk. 


They know that:  Unlike traditional investments, alternative investments' performance is not dependent on a bull market environment. In fact, some alternative investment strategies have historically produced strong gains during down market environments.



Note: Stocks offer greater liquidity and transparency than alternative investment products noted and may be less costly to purchase.


While past performance is not necessarily indicative of future results, an allocation to alternative investments, such as hedge funds and managed futures, may greatly affect a portfolio 's overall ability to preserve capital and grow wealth.


"They [hedge funds] can provide much-needed diversification and reduce risk by investing in niche areas such as private equity, commodities, and risk arbitrage or, most important, by shorting stocks-something that typical mutual fund, by law are restricted from doing."*


Marcia Vickers, with Debra Sparks and Heather Timmons "Hedge Funds Are Hot Again," BusinessWeek Online, 26 February 2001


The law requires that managers determine investors' suitability before showing them specific products.



Alternative investment products, including hedge funds and managed futures, involve a high degree of risk, often engage in leveraging and other speculative investment practices that may increase the risk of investment loss, can be highly illiquid, are not required to provide periodic pricing or valuation information to investors, may involve complex tax structures and delays in distributing important tax information, are not subject to the same regulatory requirements as mutual funds, often charge high fees which may offset any trading profits, and in many cases the underlying investments are not transparent and are known only to the investment manager. Alternative investment performance can be volatile. An investor could lose all or a substantial amount of his or her investment. Often, alternative investment fund and account managers have total trading authority over their funds or accounts; the use of a single advisor applying generally similar trading programs could mean lack of diversification and, consequently, higher risk. 


There is often no secondary market for an investor's interest in alternative investments, and none is expected to develop. There may be restrictions on transferring interests in any alternative investment. Alternative investment products often execute a substantial portion of their trades on non-U.S. exchanges. Investing in foreign markets may entail risks that differ from those associated with investments in U.S. markets. Additionally, alternative investments often entail commodity trading, which involves substantial risk of loss.


This material and any views expressed herein are provided for information purposes only and should not be construed in any way as an endorsement or inducement to invest in any specific program. Before investing in any program, you must obtain, read and examine thoroughly its disclosure document or offering memorandum.




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