In truth, "alternative investments" is entirely too broad to mention as a single category, because it is made up of many classes of investment products. While hedge funds and private equity have all the sex appeal, thanks to their super-selective vibe, the most readily available, and occasionally useful, alternatives are in areas such as real estate, commodities, annuities and Treasury Inflation Protected Securities (TIPS).
What nearly all alternatives have in common, however, is also their greatest weakness: mind-bending complexity. They're so complex, in fact, that even many financial advisors don't know or can't explain how they're created or what they do. No stranger to confusion myself, I sat down with two notable experts on the subject—my colleagues Larry Swedroe and Jared Kizer—to delve further into alternatives.
Swedroe is a principal of BAM Advisor Services, and Kizer is director of investment strategy at BAM, a community of more than 130 independent wealth management firms.
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Swedroe and Kizer teamed up to write a book called "The Only Guide to Alternative Investments You'll Ever Need," which in itself says a lot. But Swedroe also pointed me to the book's subtitle, "The Good, the Flawed, the Bad and the Ugly," as an introduction to his opinion on this topic.
"We had to stretch a little to create a 'good' category for alternatives," Larry told me. "In general, you should be skeptical of them."