Alternative Investment Vehicles
What are precious metal investments?
Precious metal investments are just making an investment in precious metals, you know; gold, silver, platinum, those types of things, and somehow acquiring ownership either of that precious metal or maybe a company that mines that precious metal. What you are really doing is making an investment play on the value of that underlined precious metal.
What are the pros and cons of investing in gold or other precious metals?
When it comes to investing in precious metals you want to consider how that investment plays into your total investment portfolio. So, why do precious metals make sense as it relates to your overall investment strategy? Usually what we're thinking there is that they're going to have a good return over time and they're going to give us a dissimilar price movement to our other investments.
What is an "REIT"?
A REIT investment, which stands for "Real Estate Investment Trust", is similar to a mutual fund in a way, in the sense that it's a pooled investment strategy. A REIT trades on the stock market, and the mangers specifically buy real estate investments.
What is a "commodity"?
In the most general terms, a commodity is a product or a good where the producer or the maker of that commodity doesn't matter. So as an example, corn as a commodity. We really don't care who grows the corn, what farmer grows the corn. Oil is another example. A barrel of oil is a barrel of oil. We don't care where, what part of the world that oil came from, oil is oil. So, a commodity is any good or real product where we're neutral; we don't care where it comes from, we just really want it.
What is "commodities trading"?
Commodities trading in the traditional investment sense is we're thinking about trading commodities contracts on the secondary market. That's what most people are talking about when they're talking about commodities trading. But what does that really mean? I'm gonna use an example of corn. If you had a farmer who was going to grow a bunch of corn, and say it was going to take him six months to bring that corn to market, many times the farmer wants to eliminate their risk of bringing that corn to market if it isn't maybe worth what it costs to produce for them, so what they'll do is they'll create a contract with somebody that they'll deliver so much corn and for that corn they'll receive a certain price. So now we have a contract of the future delivery of corn. It's that contract that trades on the market in the secondary market, which is really where we have commodities trading, and its really a speculative market at that point, where people are predicting "are we gonna have a lot of corn this year, not a lot of corn"? and that's where a lot of the volatility and when people traditionally think about commodities trading they're thinking about the secondary market for those commodities contracts.
What are the risks and rewards inherent in commodities trading?
Commodities trading is interesting in the sense that we're really not providing capital to a firm to do anything. So, we're buying stock -- we're actually giving capital to a company to go out and do something with that money. We're buying bond; we're lending money to a company to go do something. When we are trading in commodities, we're actually not using that money to create any capital. No one is actually physically taking this money and using it to do something else. In that sense of that commodities trading market, it's really pure speculation in what's going on with the market. So, what you're really doing is making a play on the speculation. Most commodities investment strategies or the diversified investment strategies using commodities are really kind of making a play on the volatility of the commodities market and that's where you're going to get gains or losses as an investment portfolio.
Why should I consider alternative investments?
The reason you might want to consider alternative investments as part of a investment strategy is because alternative investments tend to react to market conditions differently than our traditional investment stocks and bonds. Many alternative investments have a high expectation of return, like you would have with a stock. If you can have two investments with high expected returns, but they are going to earn those returns over different periods of time, it provides diversification to the portfolio and we are then managing our risk
