Many investors consider gold to be the best safe investment. Just remember that you may experience drastic price swings similar to those of stocks and other short-term risk assets. Research suggests that gold can maintain its value over the long term. So far this year, managed futures have risen about 4 percent, said Michael Greenberg, portfolio manager at Franklin Templeton Solutions.
The reason this investment is doing so well is that it follows trends, both up and down. For example, if the S&P 500 breaks below, for example, its 150-day moving average, that could be a sell signal and the manager could start to short the stocks. If you see a positive trend, it could continue in certain sectors. Managed futures don't work well during periods of volatility, when there's no real trend to follow, Greenberg said.
However, when the market collapses for an extended period, it is usually the best-performing asset class in the group. So far this year, the price of the yellow metal has risen by 4.34 percent. People want to have a physical product that has an inherent value and can maintain that value when stocks fall, said Ed Egilinsky, director of alternative assets at Direxion Investments, an ETF and mutual fund firm based in New York. Greenberg suggests that people who are nervous about the markets have a little more cash.
You won't get any advantage that other uncorrelated assets can offer, but your portfolio will fall less than if it were all in stocks. It's also easier to redistribute cash into stocks when the markets calm down. It's not suggesting that people time the market and sell their positions, but having a little more cash in general these days, after a seven-year bull run, isn't a bad idea. All of this means that an investor has to diversify and own a portfolio that includes more than just stocks and bonds, Egilinsky said.
He believes that clients should have 10 to 30 percent of their portfolio in alternative assets, such as commodities, managed futures, long-term strategies and other investments. The three financial assets you may hear about most often are stocks, bonds, and cash. A strong investment portfolio often includes a balance of these assets or combines them with others. Real assets are based on tangible things, such as buildings or a barrel of oil.
The most common types of real assets are properties and commodities. With the property, investors can own offices, apartments or industrial complexes specifically to sell or rent in exchange for a return. Commodities refer to commodities, such as oil, wheat or gold.