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A closer look at non-stock investments

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November 23rd, 2010

Has the tumultuous stock market rattled your confidence? If the down market is keeping you up at night, consider adding non-stock investments to your portfolio. We ve rounded up a few options for you to discuss with your financial advisor.

Hot commodities

Mitch Reiner, chief investment officer of Atlanta-based Capital Investment Advisors, helps his retirement-age clients diversify with master limited partnerships (MLPs), an equity-like instrument in which investors own percentages of oil or natural gas pipelines. Every time oil or gas flows through that pipeline, investors collect a fee. Another option is to invest in royalty trusts, which are similar to MLPs. With royalty trusts, Reiner says, investors purchase a portion of an oil field or natural gas pipeline, and earn royalties on the sale of the commodities.

The bottom line on bonds

Bonds have become a dirty word in recent financial news. Many investors flocked to the bond market to escape stock market volatility, and now economists fear the bond bubble may burst much like the tech bubble did in 2000. But Reiner says a balanced portfolio should still include some bonds. Just because treasury bonds are not good investments right now doesn t mean you can t buy high-yield bonds that are doing well, he says. There are other good bond opportunities out there.

Income-generating stocks

Many stock prices are at historic lows, and others continue to fluctuate dramatically. But there is no need to pull out of the market altogether. Reiner recommends investing in preferred stocks, which typically generate high income streams. And he says mega-cap stocks like Proctor & Gamble and utilities like Consolidated Edison are safe investments that tend to yield generous dividends which translates to cash in your pocket during retirement. The goal is to maintain an income stream and minimize price fluctuations in your overall investment bucket, Reiner says.

Solid gold

A share of stock can lose its value in an instant as many of us learned the hard way when the recession hit. But a bar of gold will always be worth something. That is why more investors are buying gold, according to Adrian Ash, head of research at BullionVault, an online platform for bullion gold ownership and trading. Ash compares investing in gold to investing in real estate. Of course, the value fluctuates, but the long-term investor can hold onto that physical asset. The difference between gold and real estate, Ash explains, is that gold is traded 24 hours a day on an international market, which means investors can easily monitor the value of their investments. We think people should have bit of gold in their portfolios because it tends to mitigate risk and move in the opposite direction of the financial markets, Ash says.

A word of caution

Wherever you invest, take the time to read the fine print. Florida-based financial planner Thomas Balcom of IBIS Wealth Management advises people to be weary of complex proprietary investment products. You should be able to understand how the underlying investment works and how it will generate a return. If you don t understand that, don t buy it, Balcom says. To play it safe, always work with a reputable fee-only advisor. Visitwww.napfa.orgto find certified financial advisors in your area.

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