Why to chose Alternative Investments?
Posted: Apr 22, 2017
Have you ever wondered how billionaires invest their money? How they continue to get RICHER, while the rest of the world is struggling?
After 40 years in New York managing Hedge Funds or Funds of Hedge Funds, Jean Jacques is convinced that alternative investments offer a better risk/reward ratio than traditional investments.
Average investors make a number of mistakes that keep them poor. Much of it is due to a total lack of education and understanding of what investing is all about, answers Jean Jacques Chenier.They think that the stock market is a good investment.
The long-run annualized return for the S&P 500 (including dividends) is 8%. And after fees, most professional mutual fund managers do not beat the S&P 500. Moreover, too many investors do not understand the risk they're asked to take to achieve an 8% return.
The volatility of stock market returns is best measured by looking at the dispersion of returns around the average return. This gives you a clue as to how much risk you have to endure to achieve your expected return. It's called the standard deviation and is a good way to measure risk.
The standard deviation of the S&P 500 is 19%. This means roughly 70% of the time, the S&P 500 trades plus or minus 19% around its long-term average return. So if you use strandard deviation as a gauge of risk, you'll find that the broad stock market pays you only 1 unit of return for 2 units of risk taken.
An alternative investment is an asset that is not one of the conventional investment types, such as stocks, bonds and cash. Most alternative investment assets are held by institutional investors or accredited, high-net-worth individuals because of their complex natures and limited regulations. Alternative investments include private equity, hedge funds, managed futures, real estate, commodities and derivatives contracts.
The goal of alternative investments is to generate absolute returns that can be considered uncorrelated to the performance of other markets. In general, a mutual fund seeks to produce returns that are better than its peers, and the market as a whole. This type of fund management is referred to as "relative return". The success of the asset is often based on a comparison to the market performance. If you have lost 30% of your hard-earned money but the market is down by 32%, your financial adviser is entitled to expect to be congratulated and get a bonus (out of your money, of course).
An absolute return fund seeks to make positive returns by employing sophisticated strategies that differs from the traditional "buy and hold" (also called "buy and pray"). Absolute return investment techniques include using short selling, futures, options, derivatives, arbitrage, leverage and unconventional assets like currencies or commodities. Absolute returns are examined separately from any other performance measures, so only gains or losses on the investment in question are considered.This absolute return approach to investing has become one of the fastest-growing investment products and is more commonly referred to as a Hedge Fund.
Jean Jacques Chenier has over 40 years of experience in Futures Trading andHedge Funds. He advises Hnwi. www.jeanjacqueschenier.com