Article 3

Alternative Investments Reduce Portfolio Risk and Improve Return…..

Even in this Current Interest Rate Environment!
by Michael Black, CFP, CDFA

 

The S&P 500 (most commonly used index for the US stock market) is currently where it was in July of 2001. That's 13 years of no market movement. The NASDAQ is where it was in November of 1998! That doesn't mean the stock markets were flat. The stock markets haven't seen this amount of volatility since World War II. This is why we have been introducing alternative investments to the stock and bond markets in an effort to reduce risk (volatility) and increase overall portfolio yields. Alternatives like Real Estate, Business Development Companies and Natural Gas drilling programs.

Over the last several years we have been using REITs or Real Estate Investment Trusts in our portfolios, both traded and non-traded REITs. They have been a critical tool for our clients to reduce or eliminate the losses the stock markets have presented over the last 3 years. We are currently getting out of traded REITs (those REITs that trade on the stock market) and acquiring non-traded REITs (those REITs that are not yet traded, but intend to do so). According to the New York Times, "Financial advisers and independent brokers are more likely to recommend non-traded REITs as a long-term investment strategy because of the reduced liquidity and volatility….[REITs offer] Inflation protection: Because landlords often raise rent when inflation rises, equity REITs gain more income and help protect your investments from the long-term corrosive effect of inflation."

We also work with Natural Gas developmental drilling programs that develop known resources of natural gas. You must have read Allan Greenspan's comments over the last year regarding the demand for natural gas exceeds the supply, driving prices up. You can benefit from these price increases by owning producing natural gas wells right here in the US and receive substantial tax breaks by investing in these programs. The program we work with allows you to deduct up to 90% of your first year's investment (assuming certain limitations and requirements) and has a 30 year track record of cash distributions as a company.

According to ChangeWave Investing, regarding natural gas investing, "Warren Buffett already recognizes the opportunities [investing in natural gas]. Fed Chairman Alan Greenspan is talking about the problem…..But most investors have not yet (a) grasped what's happening, or (b) figured out where the really big money is going to be made as this crisis unfolds….I can make this real simple. There is a large, growing gap between natural gas demand and natural gas supply that is about to spike prices…..This will wreak havoc on gas consumers and energy utilities…and drive the earnings power of natural gas producers sky high for the foreseeable future….What's more, this shortage is NOT a one-year event -- it is a long-term secular shortage."

 Investing in Alternative Investments can be speculative, lack liquidity, and involve substantial fees, and may not be suitable for all investors. Securities offered through ProEquties, Member FINRA & SIPC