Looking For a Great Hedge Against Market Volatility?

An increasing number of alternative investments are proving they can outperform traditional options and in many instances provide a hedge against inflation.

Profit, loss and risk crossword on white backgroundThere are two words that can send shivers down the spine of a stock market investor; Market volatility. This is because the global stock markets are directly tied-in to the inflation rate. Whenever inflation rates rise, the overall stock market values decline.

In the last five years, the markets have been extremely volatile in the wake of the Global Financial Crisis that devastated many global markets, and crippled the world economy. Millions of investors lost billions of dollars leading to (what some people are calling) The Great Recession of the 21st century. Unfortunately, there are still some lingering negative effects, particularly highlighted by the financial/economic problems currently being experienced in Greece and Cyprus.

There once was a time not long ago, when the only choice investors had was to take a gamble on the stock market and fill their portfolio with shares. Thankfully that strategy has become less popular with the emergence of an increasing number of alternative investment opportunities, that are proving they can consistently outperform the traditional offerings and in many instances provide a hedge against any threat of inflation. Nowadays, investors have lost their confidence (not to mention a lot of money as well) in traditional investments, and are beginning to take advantage of the many profitable alternatives that are dominating the investment landscape.

investors accomplishment victory

Most alternative investment options are not correlated with stocks and bonds and as a result are not negatively affected when the inflation rates go up. In fact, the opposite happens. Their value actually increases making them a great addition to any investor’s portfolio. In fact, many established investment advisers and firms are now strongly recommending that a well-balanced portfolio contain a large measure of alternatives, to protect it against under-performing stocks and volatile market conditions; which are likely to lead to high inflation rates.

The investment landscape is definitely undergoing a massive shift as global alternative investments are now valued in the trillions of dollars annually, and the trend is expected to continue for years to come; particularly as the global economy continues to grow. For the longest time, the traditional method of investing into stocks and bonds ruled the financial world. While they didn’t always deliver a great investing experience, they were the only option at the time. Thankfully nowadays times have changed, and investors have discovered a wide range of profitable alternatives to choose from.

Not All Hard Assets Are Affected By The Performance of Gold

Even though gold is at its lowest value since 1980, analysts warn that it should not be used to predict the future performance of other hard assets.

investors are worried about traditional investmentsOn April 15th, 2013 gold dropped in value more than 9 per cent, resulting in the biggest one-day fall, in 33 years. Moreover, some analysts believe it could drop an additional $100 in price per ounce, in the near future. Needless to say, this has many gold investors worried and some are even rushing to sell-off their gold assets. One fundamental of investing is that all investments carry a certain measure of risk. And nowadays, it appears that gold is no exception to this rule.

For many years gold has been considered to be a good hard asset investment for the most part. Historically it has increased in value decade after decade, and some say is likely to continue that trend by the end of this decade. But for the immediate future, gold investors will likely have to hold onto their investments; until the price goes up again. How long will it be is anyone’s guess at this point, but many experts agree it is inevitable. Until such time, investors have to be patient and not panic and sell their gold assets, which could result in a further drop in value and no gold investor wants to contribute to the assets further decline.

Gold is just one of the many hard asset investing opportunities available in the market today. Hard assets, like precious metals and gemstones, have always been considered less risky than traditional options; like stocks, bonds and even the often recommended real estate investments. As a matter of fact, many investors favor them because they are not directly correlated with the stocks and bond markets and thus are not affected by inflation, in the same way that traditional investments are.

Hard assets are essentially the materials that are needed in the manufacturing of all the world’s consumer goods and transport requirements and have always been in strong demand to facilitate the steady growth of the global economy, decade after decade. This is a fundamental reason why these investments are appealing to investors. In most instances, investors know that their investment is in an asset that is in constant demand worldwide and is expected to continue that way for many years into the future, resulting in long-term investment success.

investing in manufacturing materials hard assets

Much of investing is about speculating which direction the global economy will take. Yes, the price of gold is down at the moment, but many investors believe it will bounce-back again. Some believe it will make a comeback in an even bigger way. In fact, there are a few market analysts that have predicted the global economy will double in size by the year 2020 and in turn, the demand hard assets (like gold) will rise to facilitate the massive growth. As you can imagine, these positive forecasts mean good news for anyone who has made an investment in hard assets.

Stock Market Cannot Offer Profits Like Alternative Investing

Time and again, alternative investments have demonstrated to investors that they can out-perform stock market investments, by a growing profit margin.

worried stock market tradersWhen it comes to investing in the stock market, it is widely recommended by leading investment experts to “buy low and sell high.” Realistically this is (of course) the best case scenario, and hardly a fool-proof plan for investing. Let’s stop for a moment and consider how many investors did not get the opportunity to sell their plummeting stocks, when the global financial crisis began to unfold in 2008. At that time, many unsuspecting investors suffered significant losses, not just in terms of their assets but to their confidence and trust in the established traditional investment model; as well. Because of this, many investment-seekers regard stocks and bonds as a very risky investment strategy, and are moving away from this traditional investment offering.

There was a time when the traditional investing methods were seen as the only investment option available to private investors. Nowadays, thanks to the abundance of profitable alternative investment options now available in the marketplace, that fact is changing. Over the course of the last five years (since 2008), alternative investment offerings have been emerging and demonstrating to the investment community, that they can consistently out-perform risky stock market investments by a very attractive profit margin; that (to the surprise of most) continues to widen. As investment alternatives have become increasingly more popular with the international investment community, the traditional options like the stock market have been losing long-time investors, to offerings with lower investing risk and more favorable returns.

In most instances, those investors who have invested in established alternative investments are now enjoying better-than average returns, both consistently and constantly. Because of this, most have absolutely no intention of selling-off their investment, at any time in the near future. In fact, many investors have come to realize the long-term value in keeping their alternative holdings. It is what happy investors are more commonly referring to as, “receiving a great return on investment.” With that being said, the mass exodus out of traditional investments is underway and discouraged stock market investors are becoming more and more inclined to sell-off their risky stock investments, regardless of whether it is the “best time” to do so or not.

Banks in Europe May Experience Symptoms of Investor Withdrawal

Investors recognize that there are investing alternatives that do not include placing money in banks. This is likely to cause banks to experience withdrawals.

investors are worried about traditional investmentsWhen the Great Depression unfolded in the 1930’s, many people lost their trust in the banking sector and stock markets and instead chose to store their money in a mattress or any other place they felt it was safe. For most discouraged investors, it seemed like their only viable option at the time. It took many years before the investment community began to trust the banking system and stock markets. Nowadays the average citizen, particularly in Europe and the United States, has again lost their trust in the banks and the stock markets; but at least now they have viable investment alternatives to turn to.

What has occurred in Cyprus in the past, with the banks seizing innocent depositor’s money, amounts to nothing less than stealing from the poor to give to the rich. While they may have succeeded this time, investors expect that there will be serious consequences in the future, as a result. Leaders in the European Union have already widely acknowledged that this “formula” could be instituted in other weak EU countries, that demonstrate they are unable to manage their own financial affairs. In other words, the average citizen will be expected to help pay the bailout bill, even if they cannot afford to do so. This precedent set in Cyprus will no doubt cripple the country’s economy and cause serious hardship in people’s lives.

Although there are restrictions put in place for depositors on how much they can take out daily, the banks should realize that these traditional investments seem risky and it will be a long time before many people in Cyprus are going to put their money back into the banks for fear of having it confiscated. This policy by the EU leaders will result in many European citizens from other countries pulling out their money from the banks and seek other options where they feel their money will not be “stolen” from them. The European banks will ultimately feel the biggest losses, when this becomes a stark reality in the coming months and years, and rightfully so. Why should they profit from their own mistakes? In the business world if you make mistakes that bankrupt your company why would investors be interested in supporting such massive mismanagement? They would simply look to more profitable and safer opportunities.

Nowadays, there are many more profitable alternatives that investors can invest in, instead of putting their money into untrustworthy banks or stocks. In fact, many of the options that have emerged have proven to deliver consistent returns even during the last five years, when the markets were exposed to economic and political turmoil. It is expected that in Europe, many investors will abandon the banks and the stock markets in favor of investing in alternative investments, that will protect their money and grow it steadily; without any fear of having it lost or confiscated.