With the Dow closing over 23,000 recently, several market watchers are expecting record new highs to continue for stocks listed on the Dow, Nasdaq and S&P 500 exchanges. Many investors fear to miss the start of a long bull run, and are rushing to get in before they’re priced out of the market.
Just Because the News is Good Doesn’t Mean it’s Safe to Throw Caution to the Wind
Despite the current news, it’s important for investors to remember that nothing increases forever. There are a number of risks that all investments carry, even when all of the economic numbers are improving and all of leading forecasters are predicting market increases.
Events without warning and cause markets to pull back, correct, or downturn. There is plenty of news on the worldwide geopolitical scene to temper any enthusiasm. Improving economic conditions carry the risk of inflation, and rising interest rates, that eat into investment returns as the economy continues to expand.
Alternative Investments Offer Refuge from Future Upheavals
It is times like these when everything seems to be going in the right direction, that investors need to take precautionary measures to protect their portfolios with diversification. Alternative investments will act as a shield should inflation make a comeback, and they provide a welcome safe harbor should market forces turn and begin to spiral downward.
The following is a list of alternative investments to help you hedge your portfolio from the risk of loss.
Foreign Currencies
One way to protect your portfolio is to invest in currencies other than the U.S. Dollar. After all, when U.S. markets begin to fall, they tend to take the value of the U.S. Dollar down with them, since both are affected by similar forces.
A good strategy is to invest in a foreign currency of a country with increasing growth and political stability, such as the Iraqi dinar and Indian rupee. Investments like these offer the potential to increase in value, even if downturns affect the U.S. Dollar and American Markets.
Foreign currencies are constantly fluctuating in value against the U.S. Dollar. The Iraqi dinar exchange rate (October 2017) in particular has been extremely volatile in the past. When prices fluctuate, it provides investors an opening to acquire a currency position at an attractive price point.
Investors just need to hold their investment until it increases in value to profit. There isn’t a guarantee that a currency will increase in value, but past investors have received significant returns on their investment.
Bitcoin and other Cryptocurrencies
Cryptocurrencies are not issued or controlled by the government of any country, so they provide an automatic buffer against the risk of loss due to inflation. They also allow for instant, and anonymous payments to be sent between the sender and receiver. a growing number of individuals and organizations around the world are beginning to accept Bitcoin and other crypto-currencies as a valid payment form, and a growing list of third parties will easily help users convert them into cash.
There are a few ways to get in on this market. One is to buy or rent the mining equipment that enables users to earn bitcoin. Another is to invest in mining companies, or, buy Bitcoin or other crypto-currencies outright. Just like a foreign currency, Bitcoin holders just hold their position until the currency rises in value. Like other investments, the value of crypto-currencies is also highly volatile. For example, Bitcoin rebounded after its value declined off a recent all-time high.
Precious Metals and other Commodities
Gold and silver remain attractive alternative investments because they hold value both as a recognized means of payment, and, items such as jewelry and objects of art made with gold, silver, and other precious metals hold residual value due to the melt value of the metal that they contain.
Other types of commodities are a bit more difficult to convert to cash, and are extremely varied. Commodities include items that are mined, such as diamonds, rubies, and other precious stones, as well as coal. Commodities can be produced from other resources, such as oil and timber and can even include the crops that we grow and sell, such as oranges, wheat, and corn.
Investors can invest directly in precious metals and other commodities by buying it and holding it until it increases in value. They can also invest by buying shares in companies that produce the commodity by mining, drilling, growing or otherwise producing it. Exchange traded funds (ETFs), and even mutual funds can also allow investors to include some exposure to commodities in their portfolios. Just like other investments, the value and price of gold and other commodities fluctuates widely, with some commodities increasing in price and value in unison with the U.S. Dollar and others moving in the opposite direction to the performance of the Dollar and other currencies.