Alternative Investments Go Mainstream

July 16, 2013 

Pimco, a company managing more than $90 billion in liquid alternatives, now forecasts long-term returns of about 2 percent to 4 percent for bonds, and 4 percent to 6 percent for stocks. If Pimco is right, a balanced portfolio might average 3.2 percent, much lower than the approximate 10.3 percent returns for the past three years.

Using non-traditional asset classes, according to Pimco, may improve investment outcomes in a coming "new normal," low return environment.

Many investors are tweaking portfolios with alternative investments in an attempt to beat low returns, in a near zero-rate world, and lack of growth. Real estate investment trusts, precious metals, hedge funds, ETFs, venture capital, currencies and other alternative investments are being used to, hopefully, reduce investment risk, increase diversification and enhance overall rate of return. Alternative gains might offset declines in more tra

ditional investments like stocks and bonds.

One perceived benefit of alternative investing is the hope of achieving superior or unrelated rates of return.

"The 10-year U.S. Treasury note can be expected to deliver an average total return of about 2 to 3 percent per annum over the next five to 10 years," believes Pimco Mutual Funds' Saumil Parikh in his article Forecasting Bond Returns in the New Normal.

Before considering alternative investments, ask if the possible above-average return is worth the extra risk.

Cons of alternative investing include lack of liquidity, lack of historical investment data, and additional acquisition and sale costs. Some investments might not be readily liquid if you need to convert your investment to cash quickly.

For those not afraid of some extra risk, some investments to consider are alternative mutual funds and health care REITs. One benefit of using mutual funds, as an alternative, is greater liquidity and more efficient tax reporting to assist you in preparing your federal income tax return.

With aging baby boomers retiring, health care REITs are an alternative investment that targets senior housing.

Anticipated demand in senior health housing is growing, but, ironically, senior units are declining since 2008.

According to the U.S. Census Bureau, it is thought that within 17 years, nearly 20 percent of Americans will be older than 65.

The belief is that increasing average occupancy rates and a likely government push to assisted living, memory care, skilled nursing and independent living facilities from hospitals and rehab facilities may spark senior housing.

If traditional investments aren't providing enough zest, consider exploring alternative investments. Get proper financial advising and read prospectuses.

Jim Germer, a Bradenton CPA and financial adviser with Cetera Financial Specialists, can be reached at 941-746-5600 or at

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