It turns out I was really naive about alternative investments. When I did some analysis on returns of these so called alternative investments I found out a few interesting things that I want to share.
Hedge funds have nearly 95% correlation to the broader stock market in US
This applies to Real estate investments as well though the correlation is near 90%.
Commodities also have a very high correlation to negative correlation depending on the specific commodity and I believe they carry higher risk than equities in general.
The only real alternative investments that stand out and diversify against a loss from stock markets as you could have guessed by now are T-Bills.
Gold which lost quite a bit in value in the past few weeks has been a bad investment for a very long period of time (a few centuries) until 1980’s. Take a look at this Chart of real price of Gold from 1344 to 1998. (Reproduced from another website).
Gold should really not be considered an alternative investment because of this.
Diversifying internationally may help offset some risk, but again you might be caught off guard by exposure to countries like Greek and Cyprus.
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