3 Common Alternative Investments: Are They Worth It?

Get your stocks and bonds on.

Whether you’re a novice at investing or have been day-trading your own stocks for years, you’ve probably heard about alternative investments. You might even be curious about whether or not they’re worth buying. If you want to be a savvy investor, you need to learn about alternative investments.

Alternative investments are anything that doesn’t fall under the category of stocks or bonds, says Molly Stanifer, CFP, a financial adviser with Old Peak Finance. This includes anything from gold and real estate to curios and collectibles. Fun though it might be to start buying up real estate in the name of your portfolio, the question remains: is it worth it?

Stanifer walks us through three common alternative investments to explain a little bit more about whether or not you might want to buy them.

1. The Investment: Gold

The Rundown: A few years back it seemed like every red-blooded American was running out to buy gold, and Stanifer even saw this within her own realm of work. “In 2008–2009 when I was working at a retail brokerage company, I heard a lot of interest in gold,” she said. “A very small minority of clients were investing heavily in it—often indirectly with a fund that invested in futures contracts—but gold was certainly something people liked to talk about.”

Is It Worth It: Stanifer says she’s a big believer in diversification and owning everything in the broad market; however, your investment in any commodity, including gold, should never equal more than 3% of your portfolio. “If you choose to own more than 3%, you are communicating that you value gold higher than the broader market does,” she says. When it comes to gold, it’s ultimately best to think of it this way: gold is only a small fraction of precious metals, precious metals are a small fraction of commodities, commodities are a fraction of alternative investments, and alternative investments should be a small fraction (if any part at all) of a diversified portfolio.

2. The Investment: Real Estate 

The Rundown: In the past few years, Stanifer has heard more and more buzz when it comes to purchasing real estate as part of a diversified portfolio. This attraction makes sense, given the explosion in popularity of house fixer-upper shows and how fun and quasi-easy they make the whole process appear.

Is It Worth It: If you’re thinking about using real estate as a way to diversify, you may want to think again. Stanifer says that most investors have enough exposure already if they own one home. “Most people that own a house will already have more real estate exposure than the broad global market,” she says. Keep in mind also that there are a lot of additional expenses that come with real estate, like repairs, maintenance, utilities, and taxes, all of which may decrease the overall value of your investment opportunity.

3. The Investment: Curios

The Rundown: Most collectibles will probably not react to price in the same way or at the same time as stocks and bonds, which adds diversification to a portfolio. “But accessibility and liquidity should also be considered,” Stanifer adds. “Stamps and other collectibles are not traded as often as stocks and bonds, and when things are traded more often, there is less variation in price. As far as accessibility goes, once a rare object is discovered, there could be additional costs to get it and store it.” 

Is It Worth It: If you get enjoyment out of collecting things like stamps and coins, then the investment may be worth it to you. Keep in mind, however, that barriers and small market demand make collectibles an inappropriate investment staple, says Stanifer. In other words, if you like collecting for the hobby of it or if you expect to hand these items down to kids and grandkids, go for it—but you shouldn’t expect to get rich off your stamp collection.

Ultimately, your investments are your choice. But whatever you choose to back, make sure you’re investing in your future. Diversify your portfolio, use credit cards intelligently to build your credit and increase your buying power, and regularly check your credit report.

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Financial Adviser or Financial Planner: What’s the Difference?

A financial planner explains what to look for when asking someone for help managing your money.

The financial world is full of confusing acronyms and titles, and it seems everyone touting financial advice has a myriad of bewildering designations after their name. One of the most widely used titles is financial adviser. This label is problematic because it is generic and entirely too broad.

Insurance agents, stock brokers, investment advisers, accountants, bankers, and even some attorneys often refer to themselves as financial advisers. The term is so expansive that it typically covers any area of financial assistance. Unfortunately, there is no regulatory guidance or rules for using such a title. So, when you hire a financial adviser, you should also ask about any areas of specialization. You might find that if you want to hire someone who charges a fee for financial advice, your insurance agent — who calls herself a financial adviser — will not be able to help you.

When people ask me what I do for a living, I say, “I am a financial planner.” They typically respond by saying something like, “Oh yes, my financial adviser is with XYZ Company.” This always makes me cringe a bit because I am not just a financial adviser, but I specialize in financial planning. While financial adviser is a broad category, a financial planner — specifically a Certified Financial Planner (CFP) — specializes in providing comprehensive financial planning services (Full disclosure: I am one). Granted, your financial planner may also offer financial products like insurance or investments, but the key difference is he prepares a comprehensive written financial plan.

There are primarily two reasons why hiring a financial planner is important.

1. It minimizes some conflicts of interest. 

Several years ago, a potential client told me I was the third financial adviser he had interviewed. He said the first two said they would provide retirement projections for him at little or no cost. He wondered why I charged a fee for the plan I provide. I asked him one simple question: “How do you think they will be compensated for their time and expertise?” The answer was clear. They had to sell him something in addition to the plan to make the engagement worth their while.

You expect to pay your physician for his advice, and would never go to one who only is compensated if you fill the prescription that he writes. When I deliver a custom financial plan and am paid for my time and expertise, the plan stands on its own. I do not need to sell additional products or services. If the client decides to implement the plan with me, I can certainly help. If, however, he goes elsewhere, it was a fair and profitable engagement for me; I have already been paid for my advice and the client has a working plan.

2. A comprehensive written financial plan can uncover often overlooked but critical financial issues.

Imagine going to your physician with a complaint of chest pain. After the obligatory blood pressure and pulse readings, he places his stethoscope on your chest, listens to your heart and states, “Let’s schedule you for open-heart surgery tomorrow morning.” What would you think? Obviously, you would want some additional testing before jumping to the conclusion that you need open-heart surgery. Just as recommending surgery without a comprehensive medical exam would not be wise, providing investment advice without a full fiscal exam is equally imprudent.

Tax laws are complex, the investment landscape is volatile, and changes in one part of your plan could wreak havoc on another part. You should have a plan that covers all areas of your financial life and clearly shows how each area is impacted by your decisions to implement one or more financial strategies. Just completing a two-page investment questionnaire from your financial adviser is not enough to ensure high-quality financial advice.

[Editor’s note: Knowing your credit score is a key part of understanding your financial health. You can see how you’re doing with our free credit report snapshot, which includes two free credit scores, updated every 14 days.]

This story is an Op/Ed contribution to Credit.com and does not necessarily represent the views of the company or its partners.

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Can I Invest in Trump’s Companies?

Is there a way to capitalize on all Donald Trump’s businesses? I expect he will make policies more favorable for his companies. I want in!

Q. Is there a way to capitalize on all of Donald Trump’s businesses? I expect he will make policies more favorable for his companies. I want in!
— I want in!

A. President-elect Trump is expected to have a huge impact on the economy.

Before we discuss his businesses, let’s look at the big picture.

In general, investors should expect volatility in the markets.

“While he has Republican majorities in the Senate and House to support him, there is enough disagreement even within Republican ranks that sweeping policy change may not be easy,” Gerry Papetti, a certified financial planner and certified public accountant with U.S. Financial Services in Fairfield, New Jersey, said.

In addition to immigration and trade reform, we should expect some form of legislation centered on corporate and individual income tax cuts coupled with increases in infrastructure and defense spending, Papetti said.

Deficits and debt may also take center stage, which has implications for inflation, interest rates and bonds, he said.
Based upon current economic data, the U.S economy is fundamentally sound, according to Papetti.

“Unemployment is below 5%, real estate prices have recovered for the most part and have posted year-over-year gains,” he said. “Energy costs remain low and interest rates, even with the recent Federal Reserve action to increase short-term rates, are still low for borrowers.”

He said a pro-growth agenda, combined with lower regulation, should be supportive of the economy and the stock market longer term.

As far as trying to capitalize on Trump’s businesses, most of his direct investments are in private companies.

Without the release of his tax returns or a new disclosure, it is difficult to know what public companies he may have direct investments in, Papetti said.

Trump also claimed that he sold all of his publicly traded stock investments in June 2016, news reports said, but this is difficult to verify because Trump’s last financial disclosure came in May 2016 — a month before he claims he sold all of his stocks.

Papetti said Trump’s May disclosure listed individual stock holdings totaling $10 million, which is a relatively small percent of his overall wealth. Trump also reported in this disclosure that he had more than $80 million in hedge fund investments, and Trump’s transition team did not respond to inquiries about whether he also sold these holdings in June.

Despite all of that, Papetti said there are opportunities to invest in certain sectors of the stock market that could benefit from Trump’s expected policies. Here are six of those sectors:

  1. Energy: In addition to oil, MLPs (Master Limited Partnerships), nuclear energy and related uranium investments and mining stocks.
  2. Transportation: These stocks benefit from lower oil prices as well as overall growth in the U.S. economy, Papetti said.
  3. Treasury Inflation Protected Securities (TIPS): These would benefit from what Trump policies could do to fuel inflation.
  4. Financials: Although there’s been a strong rally since the election, decreases in regulation could lead to increased profits and growth, particularly in the regional bank sector, Papetti said.
  5. Small-Cap Stocks: These would have less exposure to a possible protectionist agenda leading to more restrictive trade, Papetti said.
  6. High-Yield Bonds: These will perform better in a rising interest rate environment.

So while you can’t necessarily buy into Trump’s hotels, steaks, water or whatever, you can position your portfolio to benefit from the policies the market is expecting from the new president.

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The Stock Market Is Iffy Right Now. What Can You Do With Your 401K?


On a daily basis, the stock market seems to buzz around like a balloon you let go of before tying the end. Equity fund prices are all over the place. The concerns de jour are China, oil prices, interest rates and the possibility of a global recession. With so much going on, it’s no wonder that the market is acting like a drunken monkey. And it’s no wonder that many investors are confused and frightened.

If you are asking yourself how to invest your retirement money now, you aren’t alone. Everyone is asking the same question. But the good news is you don’t have to sit there and remain anxious. I can’t predict the future so I’m not going to try, but there are plenty of steps you can take to protect and grow your retirement money now. Here are five of them.

1. Compare Your Funds to the S&P 500

Good markets mask underperformance, but weak markets usually don’t. Compare the year-by-year performance of your funds to that of the S&P 500. I’m not talking about 3- and 5-year averages. I’m talking about year-by-year performance. You can easily find this information online or in the fund prospectus. Another approach is to simply look at a graph of your fund vs. the market. (You can learn more about how to do so here.)

When you do this exercise, you might see funds that should have been sold long ago. Even if your funds did well during good years in the past, how did they do during market downturns? For example, aggressive funds might earn more during strong periods, but they often lose more during downturns. If you are not comfortable with those losses, it might be time to switch. This is why it’s important to review the year-by-year performance and review these kinds of graphs.

2. Make Sure You Have the Right Asset Allocation

Are you taking too much risk? Do you have too much money in the stock market? Should you shift some assets into fixed income? Even if you have great equity funds, if your allocation is too aggressive, you might get blown out of the water when things get rocky. According to a recent study by Dalbar, the average investor underperformed the market by up to 7 percentage points in 2008 due in big part to their emotions. On $100,000, that’s a potential loss of $7,000 per year. As you can see, our emotions can be extremely expensive.

One great way to keep your emotions in check is to have the right asset allocation. This simply means reconsidering the mix you have between equity and fixed income. By moving more money into fixed income and out of equity funds, you might be able to mute losses during downturns while still allowing the portfolio to grow over time.

How do you know how much risk you should take or what kind of mix works for you? There are a number of free tools to objectively measure the risk you are comfortable with and compare it to the risk you are actually taking in your portfolio. Take the time to understand your risk tolerance and then make sure you know how much risk you are actually taking. If there is a mismatch, realign your investments.

3. Review Your Process for Picking Investments

By far the most important predictor of your investment success is the process by which you buy and sell holdings in your retirement account. Some people like the “set it and forget it” approach to investing. I know this is easy to do and it saves time, but it can be very expensive as well.

The buy and hold might work if you buy index funds, but even then, you have to be mindful. Indexes come in and out of favor all the time. Take a look at how markets around the world are doing and adjust your portfolios to lighten (or eliminate) your holdings in distressed areas while perhaps putting a heavier emphasis on those areas that are performing well.

Whatever process you use to pick investments, make sure you evaluate your fund’s performance at least each year.

4. Remember Your Timeframe

When the market is soft and you see a lot of red ink on your investment statements month after month, it’s difficult to remain sanguine. But if you shift your thinking and consider your ultimate investment timeframe, it just might be easier to relax.

When most people plan their retirement, they consider the end date of the plan as the day they retire. I understand this, but I think it’s a little short-sighted.

According to the Social Security Administration, if you are 45 years old today, you can expect to live about 40 more years. This means that if you are 45 years old today, you should plan your investments with a 40-year timespan – not just until you retire.

That being the case, it doesn’t matter what your account values are today, this week, this year or next year. What matters is how to grow your money safely until you retire and how to invest that money once you do retire to create the most income in a safe way for the rest of your life.

5. Accept Imperfection

Stock market prices reflect conviction (or the lack thereof) in the economy. Right now there are both strong positives and serious weaknesses in our system. Over the short-run, the market could go either way. Nobody knows which “story” will win the hearts and minds of investors. And, as I said above, the future is unknowable – despite what some pundits say.

People who expect to call every market turn right often end up going broke. That’s because they jump in and out of investments at the instant the market turns against them. As a result, these people never give the market a chance to work its magic.

As you’ve seen, there are plenty of steps you can take to make sure you have the right investments and the right investment approach.

If you’ve taken the steps I’ve suggested above and are confident in the funds you hold and the process by which you make your decisions, your best step might be to do nothing right now and accept the fact that sometimes account values drop. It’s true and unavoidable. But you should accept that only after you’ve done everything you can to make sure you hold the right investments.

You might feel like current market volatility is a threat but it’s actually an amazing opportunity. When the market is strong, few people take the time to evaluate whether or not their retirement money is invested wisely or not. Now that the market has got your attention, take advantage of it.

[Editor’s Note: You can monitor your other financial goals (like building good credit) for free on Credit.com.]

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