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How Alternative Investments Can Make You Richer

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For decades, millions of investors relied on just a couple of different types of investments. For the money they wanted to grow, they bought stocks or shares of stock mutual funds. The rest went into income-paying investments, such as bonds, CDs, or just a plain-old bank savings account. That was enough to give those investors a simple asset allocation strategy that worked pretty well.

But as stocks entered their lost decade and interest rates on bonds and bank CDs started to get too low to provide the income they needed, investors by necessity sought out alternative investments. Now, you can buy into hundreds of different markets, ranging from stock markets nearly anywhere in the world to pork-belly futures. The question remains, though: Which of those alternative investments are really good places for your money?

Seeking smart alternatives
That's exactly the question that the Fool's Rule Your Retirement newsletter set out to answer. In this month's brand new issue of the newsletter, which is available today at 4 p.m. EDT, Foolish retirement expert and financial planner Robert Brokamp brings in a team of experts to take a closer look at the wide range of alternative investment options that are now available and separate out the best from the rest.

Two of the asset classes that Brokamp focuses on are real estate investment trusts and commodities. To help put Brokamp's advice into perspective, let's look at how investors have been using these alternative investments over the past few years.

The REIT income invasion!
Real estate investment trusts all have one thing in common: They own real estate or assets that are tied in some way to real estate. But there, the similarities end, because different REITs own vastly different types of real estate investments -- and as a result, their performance varies greatly from their peers.

Until a few years ago, the REITs that most investors focused on actually held, well, real estate. You could find actual physical properties in their portfolios, properties that you could visit and see for yourself, and form your own opinion about whether they were worth investing in. For instance, the income that mall operator Simon Property Group (NYSE: SPG  ) generated came from the rent payments that its tenants made, and so by judging from the health of malls around the nation, you could get a firm grip on how well Simon would perform.

As traditional REITs got more popular and their yields fell, investors gravitated toward a completely different type of REIT: one that focused on buying securities rather than actual properties. Annaly Capital (NYSE: NLY  ) , Chimera Investment (NYSE: CIM  ) , and a host of similar mortgage REITs never collected a rent payment, but they profited by buying mortgage-backed securities that qualified their operations for REIT status. Their double-digit percentage yields have persisted for years, and although many see an eventual drop coming in the future, some still stand by mortgage REITs as viable long-term investments even if prices and dividend payments decline.

A hot commodity
On the other side of the coin are commodity investments. Commodities got popular with the big rises in gold and oil prices over the past decade, which put a flat-to-down stock market to shame since 2000. Few investors look to commodities for current income, but price appreciation has made them look tempting. Gold investors, for instance, have been able to use SPDR Gold (NYSE: GLD  ) as an easily traded proxy for the yellow metal for years, and it has done a good job of tracking gold's long-term price moves.

But not all commodity investments have worked as well. Since its 2006 inception, the United States Oil Fund has fallen from $70 per share to about $40, despite crude oil prices having risen over the period. For natural gas investors, the news has been even worse, as a huge plunge in prices combined with unfavorable attributes of the gas futures markets led to a drop of 96% in United States Natural Gas Fund (NYSE: UNG  ) over its five-year history.

Tread with caution
To help you pick winners and avoid losers, Brokamp has brought in advisors from several other Motley Fool newsletters to give you their best ideas. In particular, you'll find four great REIT and commodity plays that avoid some of the pitfalls that other investments have fallen into. With free access available to the entire new issue through a 30-day trial subscription, you won't want to miss what the new issue of Rule Your Retirement has to offer.

Stocks and bonds deserve a place in your portfolio. But with the wide variety of alternative investments available, you owe it to yourself to consider whether you should invest in them as well. Let Rule Your Retirement help you take the first step toward making a smart investment decision.

Alternative investments are just one way to save for retirement. Get some more ideas in our special free report highlighting the shocking truth about your retirement. Don't miss this chance to grab your free copy of this can't-miss report today.

Fool contributor Dan Caplinger likes looking at all the alternatives. You can follow him on Twitter here. He doesn't own shares of the companies mentioned in this article. The Motley Fool owns shares of Annaly Capital. Motley Fool newsletter services have recommended buying shares of Annaly Capital. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. There's no alternative to The Fool's disclosure policy.


Read/Post Comments (1) | Recommend This Article (3)

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On May 03, 2012, at 1:39 PM, lisamariecurtis wrote:

    Hi Dan,

    You mentioned that commodity investments in oil and gas haven't worked well but you didn't touch on how other energy investments, like solar investments have been getting great returns. As Bloomberg recently reported, major investors from Google to Warren Buffett have been pouring billions into solar investments, lured by 15% returns (see http://bloom.bg/JXt1V4).

    Solar Mosaic is building an online marketplace that will enable everyday people to join Buffett and Google by investing directly into solar power plants. Check out our website at http://solarmosaic.com and sign up for early access to our investments this summer.

Add your comment.

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Dan Caplinger
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Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on Fool.com. With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.

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7/22/2014 4:03 PM
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