Listen to The ETF Store Show every Saturday at 4pm on KCMO Talk Radio 710AM as we cover everything you need to know about Exchange Traded Funds and the world of investing.
Does your financial advisor only have you invested in stocks and bonds or maybe some equity and fixed income mutual funds? On our most recent radio show, we explained why you might be missing an important piece of a well-diversified portfolio – alternative assets. Many people hear “alternative assets” and immediately think of some far-fetched or strange investments. That shouldn’t be the case. Investments like gold, real estate, and agricultural commodities can help lower the overall risk of your portfolio without sacrificing the returns. Many alternative asset classes have a lower correlation with traditional investments like stocks and bonds. So when stocks zig, maybe gold zags. This has the effect of lowering the volatility of your portfolio and potentially, enhancing the returns.
It’s critical to have uncorrelated assets in your portfolio so when the markets take a nosedive (think 2008 for example), you have investments that can counteract some of the decline. Even as recently as ten years ago, it could be extremely difficult for the average investor to access alternative asset classes. Many alternative assets were unavailable to all but the wealthiest and most sophisticated investors. That all changed in 2004 with the introduction of the first commodity-based ETF, the SPDR Gold Trust, ticker GLD, which invests directly in gold bullion. Since the introduction of GLD, a number of ETFs have been launched that invest in a whole range of other commodities – things like silver, platinum, palladium, oil, natural gas and agricultural crops. ETFs have become the everyday investor’s gateway to alternative investments.
So next time your advisor says, “alright, we’re placing you in a portfolio of 60% stocks and 40% bonds – now your diversified”, you may want to ask them where your alternative assets are.
Listen to the full show here.
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