If your portfolio’s return is disappointing and you are seeking for other choices, there are alternative investments and which normally means anything that falls outside traditional stock and bond investments to possibly rise when the broader markets fall. The aim is to mitigate portfolio volatility, hedge against decline and increase portfolio returns in a way that is uncorrelated to the stock market’s acttion.
The stock market gained a meager 1.2% in 2015, according to Standard & Poor’s 500 index. And so far this year, the S&P is down. The bond market’s returns have suffered in the range of 1 percent to 2 percent for at least five years. And even the Fed hiked rates in December, returns on bonds won’t change much. While risk is certainly involved with alternatives, not all are more risky than stocks. One alternative progressively has been managed is called an interval fund. These run mostly like traditional mutual funds but invest in asset classes with low liquidity, such as reinsurance or different real estate options, while there are just certain times you can invest in this kind of fund or unload your shares.
Essentially, reinsurance is insurance for insurance companies. When a person buys homeowner’s insurance to avoid bankruptcy by a ruined house, insurance companies also buy insurance to protect themselves against being unable to cover claims in the event of a disaster. And even those reinsurers buy some kind of coverage. In a word, reinsurance allows the spread out of the risk among insurers rather than handled by just one company. While there is no guarantee of a return, funds that invest in reinsurance are not tied directly to the stock market. And in the event of a disaster, like a hurricane or tsunami, a complex system of contracts allows large claims to be absorbed by worldwide insurers.
Also derived in the insurance investment space are life settlements. These involve the sale of a life insurance policy to a third party, like an investment firm. The policy owner gains a cash payment in exchange for yielding the policy to an investor who over pays the premiums and gets the death benefit once the original owner passes away. Despite the morbidity, policyholders need the cash settlement while they alive, instead of leaving money behind.