Tags: Maurer | alternative | investments | stock

Financial Adviser Maurer: Stay Away From Most Alternative Investments

By    |   Monday, 27 October 2014 02:49 PM

Many financial advisers recommend alternative investments — hedge funds, private equity funds, etc. — as a tool for diversification. But Tim Maurer, director of personal finance at the BAM Alliance, an association of financial advisers, doesn't see it that way.

"What nearly all alternatives have in common is also their greatest weakness: mind-bending complexity," he writes in an article for CNBC. "They're so complex, in fact, that even many financial advisers don't know or can't explain how they're created or what they do."

Fees also are usually higher for alternative investments than for stocks and bonds — “sometimes by a huge amount.

To be sure, some alternative investments merit consideration, Maurer says. He quotes his BAM colleagues Larry Swedroe and Jared Kizer who cite real estate investment trusts, commodities and Treasury inflation-protected securities as keepers.

But alternatives shouldn't exceed 5 to 10 percent of the stock portion of your portfolio, they say.

And if possible they should be in a retirement account, Maurer writes. "The benefit of alternative investments begins to erode in taxable accounts because of their nearly universal tax inefficiencies."

As for hedge funds, their mediocre performance and astronomical fees have led many investors to steer clear.

"The hedge fund guys pull their razzmatazz and their shtick, promising proprietary algorithms . . . and all sorts of other alchemy," writes MarketWatch columnist Brett Arends.

"If I were better at being a con artist, I'd go into business marketing my own fund, and then just quietly buy a bunch of stocks at random from New York to New Delhi, and then head to the islands. As a general rule, the simpler the investment approach the better you’re likely to fare."

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Many financial advisers recommend alternative investments — hedge funds, private equity funds, etc. — as a tool for diversification. But Tim Maurer, director of personal finance at the BAM Alliance, an association of financial advisers, doesn't see it that way.
Maurer, alternative, investments, stock
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2014-49-27
Monday, 27 October 2014 02:49 PM
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