Cap Alternative Investments

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Jonathan Clements was a longtime personal finance columnist for The Wall Street Journal, and he offers great advice at the best price you can get (free) on his blog Humble Dollar. Here is one piece of advice from his site:

CAP ALTERNATIVE INVESTMENTS. How much do you have in alternative investments—everything from gold to commodities to hedge funds? As a rule, keep your allocation to 10% or less of your total portfolio’s value, and favor simpler, less expensive options, such as funds that focus on gold stocks and on real estate investment trusts.”

As you may or may not know, you cannot invest in any alternative investments in the Thrift Savings Plan (TSP). When it comes to using alternative investments in other portions of your investing portfolio outside of the TSP, there are really two separate questions…

Do You NEED to Invest in Alternatives?


I get this answer from my favorite investment company outside the TSP…Vanguard. In this article about alternatives, they say:

For most investors, a portfolio of stocks and bonds provides plenty of diversification. Only the most sophisticated investors should consider alternative options.

The answer to this question is no. You do not NEED to invest in alternatives. Globally diversified stocks and bonds are enough, and that is what I do because I prefer a simple life. I do not invest in alternatives.

SHOULD You Invest in Alternatives?

BLUF – The answer to this question is very individual. It really is up to you.

While I don’t invest in alternatives, I’ve certainly thought about it a lot. Although at times I’ve been tempted to do it, I’ve avoided the temptation thus far. Some additional sources to consider when trying to answer this question include:

White Coat Investor Alternative Investments Podcast

Humble Dollar Guide – Alternative Investments

This message string on the Bogleheads Forum

A great book on alternative investments – The Only Guide to Alternative Investments You’ll Ever Need: The Good, the Flawed, the Bad, and the Ugly (Bloomberg) – which happens to be on my bookshelf.

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