If it is, don’t feel alone. More than 90% of all retirement accounts are invested in long-only investments that only go up when the market goes up.^1. But just because you aren’t alone, doesn’t mean you should be. Between January 2000 and March 2011, equities produced an annualize return of less than 1%^2. And if you are a bond investor, keep in mind that bonds have an inverse relationship with interest rates. When interest rates are low, bond prices are high. But when interest rates are high, guess what happens to bond prices? That is a sure way to keep you awake at night. Does this mean you shouldn’t have equities in your portfolio or even certain types of bonds? Absolutely not! But….and this is a BIG “but”…there is a little known thing called “alternative investments” that can help take the sting out of these traditional investments.

Let me paint a picture for you: You are in a canoe floating down the river. You know there is a 40 foot waterfall ahead, but have no clue as to when you will arrive there And you aren’t exactly sure how prepared you are for the drop – ropes? lifejackets? Do you just sit in the canoe and hope for the best or do you prepare an alternative approach to the situation? This is much the same with alternative investments.

So what is an alternative investment?  Basically, the term is self-explanatory: it is an alternative to traditional investments, such as stock, bonds, mutual funds, etc. There is tremendous diversification among alternative investments – hard assets such as gold, silver, oil, real estate; commodities; managed futures; private equity; private debt; etc. These investments have averaged between 6%-15% annually in the same time period we gave for equities earlier², but just like any individual investment, you can lose money.

By this point it’s probably pretty clear you should at least consider researching whether alternative investments are suitable for your portfolio. And if so, how to do it.

If you are not retired, most of your retirement is most likely in a retirement plan with the company you work with and is possibly at the mercy of the stock market. Very rarely do we find a retirement plan that allows for alternative investing – and especially non-traded alternative investments. So is you want to consider a broader diversification, I recommend you speak with your human resources department and find out how much you can roll out of your retirement plan now. (Believe it or not, most companies allow you to do this after a certain age.) Then, find an advisor (we’re right around the corner!) that can help you diversify your retirement with both traded and non-traded alternative investments if, in fact, that is a suitable solution for you.

I know…it can be confusing. And what is all this talk about traded and non-traded alternative investments? When many of our clients come to us, they assume they have a well diversified portfolio with a wide array of investments. And some do – to a certain point – but one key component to a truly well diversified portfolio is missing: “non-traded” alternative investments. Most alternative investments are traded on exchange, which leaves them exposed to market volatility. We prefer to include both. We don’t like our clients’ entire retirement to be at the mercy of the stock market. And equally important, many non-traded alternative investments offer tax advantages for taxable accounts.

If you are already retired, you may need to take a deeper look at your portfolio. Do you have alternative investments? Do you have both traded and non-traded alternative investments? If you answered “no” to either question, you need to ask “why not?”

An under developed retirement plan and portfolio is not a canoe I want to be in and I am guessing you don’t want to either.  Consider our S.O.S. (second opinion service) to help you with the due diligence on your portfolio.

1. Investment Research at Lipper, Inc.
2. Investment News/April 2011

Alternative investments involve risk including loss of principal and are typically illiquid investments. Please read the PPM for any specific alternative investment you are considering for a complete list of the risks involved. Securities & Advisory Services offered through VSR Financial Services, Inc., a Registered Investment Adviser and Member FINRA/SIPC. Kennedy Financial Services is independent of VSR Financial Services, Inc.