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What do medicine, rock music, energy, schools, and vehicles all have in common?

(Insert your favorite quiz show theme song here…)

YES, that is correct!

They all have a growing (and in some cases, quite popular) sub-category called…ALTERNATIVE.

And I am happy to tell you that you can add our awesome “investing” category to that list!

So what exactly are “alternative” investments?

Well, according to Investment News, an industry publication geared toward financial advisors which thanks to my good friend Jeff I now read,

“Alternative investments are any investments other than the traditional asset classes – stocks, bonds and cash. Alternatives can offer a low level of correlation with fixed-income and equity markets, and they are gaining popularity with investors seeking to add another dimension of diversification to an investment portfolio. Improving diversification may lower overall risk because different types of investments respond differently to market conditions.”

Fantastic! Finally our lowly little “alternative” investments are getting some play in the media! (Even if it is only by somewhat dorky financial media that only super-geeks such as myself read…but hey, I’ll take it!).

This is GREAT news, because I firmly believe that adding alternative investments and/or using alternative “sophisticated” strategies can greatly increase your returns and make you a much happier (and more truly diversified and therefore less risky) investor. Hooray!

Investment News goes on to say:

“Alternative investments play a growing role in the portfolios of many sophisticated individual and institutional investors, yet a majority of affluent Americans admit their knowledge about these investments is scanty at best.”

And there you have it—this one quote sums up pretty much my entire view of what I know to be true about investing:

  1. Sophisticated, “smart money”, and institutional investors use a variety of alternative investments to achieve far better results than the average Joe or Jane like you and me, and
  2. Most “regular” people have no knowledge of these investments…they have no idea how to buy farmland in Uruguay or rental real estate in Chile or invest in a stock on the Mongolian stock exchange or buy an ounce or more of real physical gold or silver bullion or buy or sell a commodities futures contract or complete a currency trade on the FOREX or… (the list goes on and on!)

And yet, it is by investing in those “alternative” types of investments (in addition of course to simply becoming aware of your finances and giving them some much-needed focused attention!), that will give you the best chance of becoming an “accredited” investor.

That is certainly true in my case, and I would hazard a guess that it is true for most “accredited” or sophisticated investors. All of the sophisticated investors I know participate in at least some form of “alternative” investing, and they all profess that it is these very same “alternative” investments and strategies that give them the best (and the most stable and least risky) returns.

Whether you learn to become a proficient commodities futures trader like my friend Kent, or earn rental income like our Kung Fu Finance subscriber Aunty, or master the art of FOREX like KFF subscriber Ryan is working towards, or invest in frontier markets like my friends at Capitalist Exploits, or become a gold and silver pro like my friend Gary, or a VC like my friend Cedric, or use options to earn income on your stocks and reduce your risk like KFF subscriber Kris, or something else entirely…I am firmly convinced that adding some (or even ONE) alternative investment strategy to your portfolio will help you to dramatically improve your finances!

And that’s what we are all about doing here at Kung Fu Finance — helping 1000 people to “dramatically improve their financial situation” in the next 12 months!

And just like medicine and rock music, once you leave the “average” “mainstream” world of mutual funds and ETF’s, a whole wide world of possibilities (and possible returns!) opens up to you.

And happily this is true not only with alternative investments themselves, but also with alternative (or sophisticated) strategies on more “common” investments, like goosing your returns and lowering your risk in the stock market with careful use of options.

(Yes, that’s right…I did say lowering your risk in the stock market with careful use of options—something that most people assume are terribly risky!). Just as the quote states above, proper use of alternative investments and strategies can actually lower your risk, although this is counter to what the mainstream financial houses would have you believe.

However, here is the bad news…

Investment News also reports in that same article that in a recent survey of affluent American investors (commissioned by Natixis Global Asset Management), more than two-thirds of the respondents said they only understand alternative investments a little or not well, and more than 40% of investors confessed they don’t understand alternative investments at all.

Ouch. This is so sad, and is exactly what I am trying to help fix here at Kung Fu Finance. (In fact, if you find value in the information I’m sharing with you about yield and monetary history and smart money strategies and what-not I would really appreciate you helping to spread the word. Thank you!)

It’s no longer “good enough” or even safe to simply follow the mainstream herd and “hope” to have enough to retire on one day. You’ve got to go all Green Day and kung fu on your financial education and learn some alternative strategies to help you succeed and meet your goals!

So What Should You Do?

I’m glad you asked… Here is your Kung Fu Finance Kick (in the pants…) 🙂 action step for the week:

  • Commit to investigating and learning about just one new alternative investment or investment strategy this week

Your portfolio will thank you tremendously (and so will I!).

I would love to know what your favorite “alternative” investment or investing strategy is in the comments—please let me know! (I’ve been working on mastering selling put options lately in addition to all of the other random stuff I do…more on that and my experiences with it are forthcoming!)

Go drink some green tea, turn up your old R.E.M. records, and get busy….and thank you so much for reading and contributing to our KFF community!

To your financial success,
— Kung Fu Girl

“Two roads diverged in a wood, and I—
I took the one less traveled by,
And that has made all the difference.”

—Robert Frost, The Road Not Taken, US poet (1874 – 1963)