The Only Guide to Alternative Investments You'll Ever Need
Description
Expand Your Investment Horizons
The Only Guide to Alternative Investments You'll Ever Need
There is a whole world of investments beyond traditional stocks, bonds, and bank certificates of deposit.
Financial advisers Larry Swedroe and Jared Kizer have chosen twenty popular alternative investments and provided a comprehensive description of each. They explain the nature of the investment and assess whether or not it combines well with the other assets in your portfolio. Swedroe and Kizer evaluate each type of investment in terms of:
- >
- Volatility
- Distribution of returns
- Diversification potential
- Fees
- Trading and operating expenses
This book is a valuable resource for investors who are ready to consider expanding their portfolio beyond traditional investments.
"What a great service this book is to the investing community! As investors reach out for higher returns, many will venture into the higher-risk category known as alternative investments. For those who are so tempted, this book provides an invaluable guide." --EDWARD R. WOLFE, PHD, Professor of Finance and Director of the Financial Planning Program Western Kentucky University
Formerly an investment adviser for Buckingham Asset Management, LLC, Jared Kizer, CFA, works for an institutional money-management firm. His articles on investing have appeared in the Journal of Portfolio Management, Journal of Indexes, and on indexuniverse.com. He received his master's in finance from Washington University. He lives in St. Louis.
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Larry E. Swedroe is a principal and the director of research for Buckingham Asset Management, LLC (www.bamservices.com). He is the author of several books, including Wise Investing Made Simple and The Only Guide to a Winning Investment Strategy You'll Ever Need, and coauthor of The Only Guide to a Winning Bond Strategy You'll Ever Need. Swedroe received his MBA in finance from New York University. He lives in St. Louis.
Content
Introduction.
A Travel Guide to Alternative Investments.
Modern Portfolio Theory.
The Good, the Flawed, the Bad, and the Ugly.
PART 1 The Good.
Chapter 1 Real Estate.
Historical Returns and Risk: U.S. Real Estate, U.S. Equities, and International Equities.
The Diversification Benefits of REITs.
Benefits of Diversification: Sample Portfolios.
Asset Location and Real Estate.
Recommended Investment Vehicles.
International Real Estate.
DRW, RWX, and WPS.
DFA International Real Estate Securities Portfolio.
Tax Considerations.
The Wrap-Up on International REITs.
Your Home and the Asset Allocation Decision.
Wrap-Up on the Home as an Investment.
Wrap-Up on Direct Ownership.
Summary.
Chapter 2 Inflation-Protected Securities.
Real or Nominal Return Bonds: Which Are Riskier?
TIPS: Doing the Math.
Correlations with Equities and Inflation.
Inflation, Price, and Interest Rate Risk.
Inflation Risk.
Price Risk.
Interest Rate Risk.
TIPS: Pros and Cons.
Pros.
Cons.
Allocating Between Real and Nominal Return.
Fixed-Income Assets.
A Shifting Allocation Approach.
Developing a Strategy.
Implementation.
A Shifting Maturity Strategy.
I Bonds.
Summary.
Chapter 3 Commodities.
Correlation with Stocks, Bonds, and Inflation.
Event Risk.
A Risk-Reduction Tool.
Portfolio Efficiency.
Gaining Exposure to Commodities.
Mutual Funds: QRAAX and PCRIX.
Commodity-Related ETFs.
Commodity-Related ETNs.
CTAs.
The Argument Against Investing in Commodity Producers.
The Equities of Oil Producers.
Implementation.
Summary.
Chapter 4 International Equities.
|Emerging Markets Equities.
Correlations.
Sample Portfolios.
The Risks of Investing in Emerging Markets.
Small-Cap and Value Stocks.
Recommended Vehicles.
Wrap-Up: Emerging Markets.
International Small-Cap Stocks.
Sample Portfolios.
Recommended Vehicles.
Summary.
Chapter 5 Fixed Annuities.
How Long Do Payments Continue?
Determinants of Payment Size.
The Benefits of Annuitization.
Mortality Credits Make It Possible.
When Annuities Can Be the Right Choice.
Evidence from Academia.
When to Purchase a Fixed Annuity.
Inflation-Indexed Immediate Annuities.
Summary.
Chapter 6 Stable-Value Funds.
Unique Risk and Return Characteristics.
Investment Portfolios.
Risks.
Costs.
Restrictions.
Returns Change Slowly Over Time.
Cash Flows Can Affect Returns.
Summary.
PART 2 The Flawed.
Chapter 7 High-Yield (Junk) Bonds.
Explaining the Low Correlation.
Is Higher Yield Worth Higher Risk?
The Importance of Equity Risk.
Hybrid Securities and Asset Allocation.
Evidence Supported by Theory.
Do High-Yield Bonds Have a Role?
Illiquid Securities.
Other Negative Characteristics.
Distribution of Returns Matters.
High-Yield Bonds and Efficient Frontier Models.
Inflation Risk.
Asset Location.
The Need for Diversification.
The Historical Evidence.
Vanguard High-Yield Corporate Fund.
More Efficient Alternatives.
Summary.
Chapter 8 Private Equity (Venture Capital).
Origins.
The Attraction.
The Historical Evidence.
Characteristics of Private Equity Returns.
Venture Capital Versus Publicly Traded Securities.
Inefficient Diversification.
Bias in the Data.
Perception Versus Reality.
Private Equity's Role in a Portfolio.
Nonmonetary Explanations for Private Equity Investing.
Summary.
Chapter 9 Covered Calls.
Taxes Matter.
Transactions Costs.
An Alternative Strategy.
Summary.
Chapter 10 Socially Responsible Mutual Funds.
Defining SRI.
Rapid Growth.
Does Socially Responsible Investing Come at a Price?
The "Price" of Principles.
Summary.
Chapter 11 Precious Metals Equities.
Risk.
Returns.
Correlations.
The Hedging Value of PME.
Positive Attributes of PME.
Other Considerations.
Implementing the Strategy.
Summary.
Chapter 12 Preferred Stocks.
Long Maturities.
Risks and Rewards of Long Maturities.
Call Risk.
Credit Risk.
Long Maturities and Call Risk.
Dividend Suspension.
Preferential Treatment for Corporate Buyers.
Other Considerations.
Tax Advantages.
Summary.
Chapter 13 Convertible Bonds.
The Realities of Convertible Bonds.
Considerations.
Shifting Asset Allocation.
Asset Location.
Complexity.
Summary.
Chapter14 Emerging Market Bonds.
Risks.
Returns.
Correlations.
Potential Positives.
Additional Considerations.
Summary.
PART 3 The Bad.
Chapter 15 Hedge Funds.
Exclusive Nature.
Why Hedge Funds Aren't Mutual Funds.
Facts Versus Fantasies.
Hedge Fund Risks.
Wisdom and Experience, or Hope and Hype?
The Cost of Folly.
How High an Alpha Does a Hedge Fund Need?
How Funds of Funds Increase Hurdles to Outperformance.
The "Ill-Logic" of Hedge Funds.
Long-Term Capital Management.
The Death of Genius.
LTCM's Downfall: The Tyranny of Market Efficiency.
Risk Versus Uncertainty.
Fooled by Randomness.
Summary.
Chapter 16 Leveraged Buyouts.
Summary.
Chapter 17 Variable Annuities.
Deferred Variable Annuities.
Tax-Deferred Growth of Earnings.
The Life Insurance Component.
Ability to Annuitize.
Other Negative Features.
Are VAs Really That Bad?
Sold or Bought?
The Art of Deception.
Variable Immediate Annuities.
How Payments Are Determined.
The Purpose of Immediate Annuities.
Possible Reasons to Buy a Variable Annuity.
1035 Exchanges.
Other Considerations.
Summary.
PART 4 The Ugly.
Chapter18 Equity-Indexed Annuities.
Caveat Emptor.
Minimums That Aren't Minimums.
Penalties for Early Withdrawal.
Tax Inefficiency.
Summary.
Chapter 19 Structured Investment Products.
Mondo National Bank Principal Protection.
Notes: Product Features.
More Efficient Alternatives.
A Closer Look at Hypothetical FRATS.
Why Such "Attractive" Terms?
More Efficient Alternatives.
Being Careful Out There.
Summary.
Chapter 20 Leveraged Funds.
The Proof Is in the Pudding.
Summary.
Final Thoughts.
Notes.
Glossary.
Recommended Reading.
Sources of Data.
Index.