Shares might provide long-term growth, but that's small consolation when you've watched the value of your stock holdings drop by a fifth or more in the past year. To generate consistent returns even when stockmarkets are crashing, you need to spread your risk. That means putting money into alternative investments. Put simply, alternative investments are assets which do not depend on stockmarket appreciation to generate returns. When stockmarkets are down, alternative investments should still provide positive returns, smoothing income volatility and boosting overall portfolio performance.
Alternative investments diversify sources of profit and minimize volatility.
But if you think alternative investing means collecting Tang dynasty bronzes or vintage Ferraris, think again. Just like stock prices, the prices of ancient artefacts or collectible cars are heavily dependent on the health of the underlying business cycle. For investments not correlated with the mainstream economy and financial markets, potential buyers must look at hedge funds. Long the exclusive preserve of the filthy rich, hedge funds are becoming more and more accessible to ordinary investors. Yet the industry remains deeply misunderstood, especially in Asia.